What is a bill of exchange? When should you use it?

Within the business world, there are all kinds of financial instruments that offer security as well as flexibility, which is key to managing cash flow. Among all these options is the bill of exchange, a legal document that commits to the payment of a certain amount on a specific date.

It is a document with legal force that guarantees payment, but what are its advantages and disadvantages, or how does it exactly work? To help you understand it and make the most of it, we have prepared this complete guide for you.

What is a bill of exchange?

A bill of exchange is a title-value that guarantees the commitment to pay a certain amount of money. It is defined as a written title by which one person, called the drawer, orders another person, called the drawee or debtor, to pay a sum of money on a specified date. The payment of the bill of exchange will be made to the drawer or a third party, known as the payee, holder, bearer, or holder.

The important thing about this document is that it sets a fixed term for payment, ensuring that the commercial transaction is formalized and executed on the agreed time. Therefore, its main advantage is the legal force, allowing the beneficiary to demand judicial payment in case of non-compliance, making it a secure tool for businesses.

Who are involved in a bill of exchange?

When talking about a bill of exchange, there are three main figures to highlight:

• Drawer - The person who issues the bill of exchange as well as the payment order.
• Drawee or debtor - The person who commits to paying the bill of exchange. This bill of exchange must be signed, thus confirming the payment obligation.
• Payee, holder, bearer or holder - The person who receives the money. This person may be the same as the drawer.

In addition to these three profiles, the following individuals may be involved in the operation of the bill of exchange:

• Endorser - The one who endorses or transfers the bill of exchange to a third party.
• Endorsee - The person or company in whose favor the bill of exchange is endorsed.
• Guarantor - The one who guarantees the payment of the bill.

Function and benefits of a bill of exchange

Using a bill of exchange has several benefits for businesses. First of all, it ensures the future collection of a specific amount, giving peace of mind to the seller or service provider.

On the other hand, it gives the buyer a margin of time to gather the necessary funds to make the payment, thus facilitating credit sales.

Another aspect of interest is the flexibility of bills of exchange. They can be used in both domestic and international operations. Additionally, bills of exchange are transferable, allowing the beneficiary to assign the collection right to third parties, whether banks or financing entities like Inversa, thus guaranteeing immediate liquidity.

When to use a bill of exchange?

There are several contexts in which a bill of exchange is particularly useful:

• Credit sales - When payment deadlines are given to customers, the bill of exchange ensures that the payment is made at the agreed time.
• Long-term financing projects - In large commercial transactions, where the payment terms are extended, the bill of exchange offers security for both the seller and the buyer.
• International operations - As it is a globally recognized document, bills of exchange facilitate foreign trade, providing guarantees in countries with different legal frameworks.

Differences between a bill of exchange and other title-value instruments

It is common to confuse a bill of exchange with other title-value instruments, such as promissory notes or checks. However, it is important to highlight that there are significant differences. Here, it should be understood that the promissory note, unlike the bill of exchange, is a promise to pay from the issuer, whereas the bill of exchange requires the acceptance of the person who will make the payment.

On the other hand, the check is a payment order that is made immediately. However, the bill of exchange sets a time frame for the collection of the same.

Each of these instruments has its use, although the bill of exchange stands out for being safer and having firm judicial backing in case of non-compliance.

How to use a bill of exchange to finance your business?

Many companies seeking immediate liquidity resort to bill of exchange discounting services to avoid long payment periods. In this process, the collection right is transferred to a financial entity, which advances the total amount, minus a small commission.

At Inversa, we offer bill of exchange discounting solutions that allow businesses to access their money quickly, optimizing cash flow and avoiding delays in collection.

This tool is ideal for companies that handle long payment terms and need immediate liquidity to continue operating smoothly.

Is a bill of exchange a suitable option for your business?

Does your business operate with payment terms? Or are you someone who seeks more security in invoice collection? Then the bill of exchange could be the perfect solution for you. Furthermore, thanks to financing solutions such as the bill of exchange discounting offered by Inversa, you can access the funds you need without waiting for the due dates to arrive.

Would you like more information or explore our solutions? Feel free to contact us to see all the advantages we can offer you.