Bill of exchange: what is it, what is it for and when is it used?

They are held daily in the financial market millions of loans between individuals and entities. These can be paid in various ways: with cash, by bank transactions, through promissory notes, among others. However, one of the options The safest and most widely used payment methods are bills of exchange. If you still don’t know what it is about, in this note we explain everything you need to know about this commercial document.

What is a letter of change?

The bill of exchange is a written order, covered by legal requirements, by means of which a person or entity named drawer establishes an unconditional commitment to another person named turned, so that it pays a certain amount of money to a beneficiary on a set date. Usually, the beneficiary is the same drawer.

In other words, a bill of exchange it’s a commercial collection document where the payment of a specific sum of money is ordered on a certain date.

What figures are involved in a bill of exchange?

In a bill of exchange There must be at least three participants, although this may vary depending on how the transaction proceeds, since, depending on the case, the figure of the guarantor or endorsee may appear.

• The spinner: It is the person who issues an order to the drawee to pay the beneficiary.
• The rotated: He is the one who receives the order from the drawer to pay the beneficiary.
• The beneficiary: It is the person who will receive the payment on the established date.
• Endorser: It is the person who has the bill in his possession but for liquidity needs decides to transmit it to a third party including in this transfer all his rights and obligations
• Endorsee: He is the one who receives the letter. It would be the new policyholder or beneficiary of the same. It can be a natural or legal person (it is common for it to be a financial entity).
• Guarantor: It is the person who guarantees, in whole or in part, the payment.

What requirements must a bill of exchange have?

According to article 119 of the Securities Law, this document must contain at least:

• The denomination of the bill of exchange.
• The indication of the place and date of the transfer.
• The unconditional order to pay a certain amount of money or a determinable amount of it, in accordance with the systems of updating or readjustment of capital legally admitted.
• The name and number of the official identity document of the person in whose charge it is drawn.
• The name of the person to whom (or to whose order) the payment is to be made.
• The name, the number of the official identity document and the signature of the person issuing the bill of exchange.
• The indication of expiration.
• The indication of the place of payment and / or, in the cases provided for by article 530 of the Securities Law (TLV), the way in which it is to be carried out.

What is a bill of exchange for?

A bill of exchange It serves to ensure the payment of a debt, since, being a security, it has an executive nature, so it can be collected through a judicial process, which has speed as its main characteristic. It also serves as payment method.

When is a bill of exchange used?

The bill of exchange is used for the following purposes:

• Guarantee of payment of the credits granted: Can be used to grant secured financing. If the payment is not fulfilled, the drawer can protest the document in court.
• Payment method: It can be used as a means of payment to facilitate purchase and sale transactions.

What is the endorsement of a bill of exchange?

One of the most important characteristics of bills of exchange is that they can be endorsed to a third person. This means that the drawer of the bill can transfer its right to collection by endorsement to a third party, usually a bank or financial institution, and in this way obtain immediate liquidity.

The purpose of the endorsement is get the money before it expires for a small cost. The new creditor of the debt (endorsee) may in turn re-endorse the right of collection to another person, and so on, that is, the bill of exchange allows endorsements indefinitely, except when the clause is established in the document not endorsable.