Cheque and BOE are one of several types of negotiable instruments available. According to Section 13 of the Negotiable Instruments Act of 1881, A “negotiable instrument” means a promissory note, bill of exchange, or cheque payable to order or bearer. Thus, a negotiable instrument means any written document transferable on delivery. A cheque is a financial instrument issued by an individual or an entity directing the bank to provide the recipient with the stated amount of money. On the other hand, a Bill of Exchange is a written order from one party (the drawer) to another party (the drawee) to pay a specific amount of money to a third party (the payee) at a later date.
What is a Cheque?
A cheque is a widely used payment instrument in various business transactions. It contains the payer’s date, written amount, and signature, instructing a bank or financial institution to pay a specified sum to the bearer.
When the payee presents the cheque to the bank, the funds are deducted from the payer’s account as if an order was given to transfer the specified amount from the payer’s account to the payee’s account.
The individual who makes the payment is referred to as the “payer,” while the one who receives the payment is known as the “payee.” Cheques are typically drawn against a specific account designated for payment, but they can also be used to withdraw funds from savings or other accounts.
What is a Bill of Exchange?
When transactions involve cash, payment is received immediately. However, when goods are sold or bought on credit, payment is deferred to a later date. In such cases, the selling firm usually relies on the buyer to make the payment on the agreed-upon due date.
To mitigate the risk of delay or default, some firms utilize a credit instrument that assures the seller of timely payment according to the agreed terms. In India, credit instruments have been used historically in the form of “Hundies” written in various Indian languages.
Difference Between Cheque and Bill of Exchange:
Criteria | Cheque | Bill of Exchange |
|---|---|---|
Payable To | Always payable on demand. | Can be payable on demand or at a future date. |
Acceptance | Not required from the drawee bank. | Requires acceptance from the drawee. |
Parties Involved | Drawer, Drawee (bank), Payee | Drawer, Drawee (acceptor), Payee |
Usage | Primarily used for withdrawing money from a bank account. | Used for trade transactions to secure payment. |
Crossing | Can be crossed to indicate that it must be deposited into a bank account. | No concept of crossing. |
Bank Involvement | Direct involvement as the drawee. | Bank involvement only if the bank is the drawee. |
Conclusion
Cheque and Bill of Exchange both are used to make payments easily. However, the cheque itself is a type of bill of exchange, used to discharge the liabilities and so it consists of all the features of a bill of exchange. Not only in business, but individuals, government agencies, and other institutions also use the cheque to make payments but the bill of exchange is mostly used in business.