Negotiable Instrument, Discounting of Bill, Bill of Exchange, and Draft

Negotiable instrument is document of title or evidence of indebtedness that is freely (unconditionally) transferable in trading as a substitut for money. Negotiable instruments are unconditional orders or promise to pay, and include checks, drafts, bearer bonds, some certificates of deposits, promissory notes, and bank notes. A negotiable instrument has three principal attributes: (1) an asset or property (that is the subject matter of the instrument) passes from the transferor to the transferee by mere delivery and/or endorsement of the instrument, (2) a transferee accepting the instrument in good faith and for value (and who has no notice of any defect in the title of the transferor) obtains an indefeasible title and may sue on the instrument in his or her name, and (3) no notice of the transfer need to be given to the party liable in the instrument.

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Discounting of Bill refers to cashing or trading a bill of exchange at less than its par value and before its maturity date. The cash thus realized varies according to the number of days until maturity and the risk involved.

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Bill of Exchange is written and unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum either immediately (the sight bill) or on a fixed date (the term bill), for payment of goods and/or services received. The drawee accepts the bill by signing it, thus converting it into a post-dated check and a binding contract. It is also called a draft but, while all drafts are negotiable instruments, only "to order"bills of exchange can be negotiated. According to the 1930 Convention Providing A Uniform Law For Bills of Exchange and Promissory Notes held in Geneva (Geneva Convention), A Bill of Exchange contains: (1) The term "bill of exchange"inserted in the body of the instrument and expressed in the language employed in drawing up the instrument. (2) An unconditional order to pay a determinate sum of money. (3) The name of the person who is to pay (drawee) (4) A statement of the time of payment (5) A statement of the place where payment is to be made. (6) The name of the person to whom or to whose order payment is to be made. (7) A statement of the date and of the place where the bill is issued. (8) The signature of the person who issues the bill (drawer). Bill of Exchange is the most often form of payment in local and international trade, and has a long history-as long as that of writing going back over 5000 years.

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Draft is bill of exchange which is written payment order from one party (the drawer) to the another (the drawee) to pay a stated sum to a third party (the payee) either immediately (in case of a sight draft) or on or before a specified date (in case of a time draft). When presented with shipping and/or title documents, it is called a documentary draft; without them, a clean draft. Also called draft bill of exchange.

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