what is the distinction between Bill of Exchange and a
Cheque
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Answer Posted / faritha.k.a
A lot of business activities are going on round the clock in
all parts of the world. All business activities involve
exchange of goods and services. These goods and services are
sold for cash or on credit. In daily life, it is impractical
to issue Cheques for all the transactions that we carry out
and as such we make use of either cash or use our credit
cards to make payments at cinema halls, restaurants or when
buying something from the market. But when it comes to
receiving payment for the service that we render to our
employer or our client, we tend to receive money in the form
of Cheques that are cashed when we present them in our
banks. It is impractical to give or receive huge sums of
cash which is why people prefer to give or receive Cheques.
In practice, businessmen make use of documents called
negotiable instruments to give and receive money. Cheques
and bills of exchange are examples of these negotiable
instruments. In this article we will attempt to find out
differences between these two types of documents; Cheques
and bills of exchange.
Bill of exchange is another important type of negotiable
instrument that is used to make or receive payments in
businesses. Let us understand it through an example. Let us
assume Tom has given a loan of $1000 to John. But Tom has to
make a payment of $1000 to Roger from whom he has either
taken goods or services. If Tom does not have cash, he can
issue a document directing John to make a payment of $1000
to Roger whenever Roger demands or after the expiry of a
period. This document is referred to as a bill of exchange
which can be further transferred.
Cheque vs Bill of Exchange
• While a Cheque can only be drawn on a banker, a bill of
exchange can be drawn on any party or individual.
• There is no need for acceptance in case of a Cheque but a
bill of exchange must be accepted before the drawee can be
made liable upon it.
• While there is no grace period in the case of a Cheque and
it must be paid immediately by the banker, there is usually
a grace period of 2-3 days in the case of a bill of exchange.
• A Cheque is either crossed or uncrossed while there is no
such requirement in a bill of exchange.
• In the case of a bounced Cheque, notice of dishonor is not
necessary but it is a must in case of bill of exchange.
• A Cheque needs no stamp but it is necessary in case of
bill of exchange.
• You can stop payment in case of a Cheque but it is not
possible in case of a bill of exchange.
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