Bills of Exchange are a source of finance in particular in the export trade. A Bill of Exchange is an unconditional order in writing addressed by one person to another requiring the person to whom it is addressed to pay to him as his order a specific sum of money. The commonest types of bills of exchange used in financing are accommodation bills of exchange. For a bill to be a legal document; it must be

 a) Drawn by the drawer.

b) Bear a stamp duty

c) Acceptable by the drawee

e) Mature in time.

It is used to raise finance through:

 i) Discounting it.

ii) Negotiating

iii) Giving it out as security.

 Advantages of Using a Bill as a Source of Finance

  • They are a faster means of raising finance (if drawer is credible).

  • Is highly negotiable/liquid investment

  • Does not require security

  • Does not affect the gearing level of the company

  • It is unconditional and can be invested flexibly

  • It is useful as a source of finance to finance working capital

  • It is used without diluting capital.