Understanding Credit Instruments: Bills of Exchange, Checks, Promissory Notes

Credit Instruments

The instruments most commonly used in exchanges between companies are the bill of exchange, checks, and promissory notes.

Bill of Exchange

A bill of exchange is a commercial document whereby a person, the drawer, orders another, the drawee, to pay a certain amount of money on a particular date. The payment of the bill of exchange can be made to the drawer or a third party called the beneficiary, payee, or holder, to whom the drawer has sent or endorsed the bill of exchange.

• The drawer: Is the person who is a creditor of the debt and who issues the bill of exchange.
• The drawee: Is the debtor who must pay the bill of exchange. The drawee may accept or reject the payment order given by the drawer, and if they accept it, they are obliged to perform it. In this case, the drawee will be called the acceptor.
• The policyholder, carrier, holder, or beneficiary: The person who is holding the bill of exchange and to whom it should be paid.

The bill of exchange is a means of payment in commercial transactions that replaces cash. It represents an instrument that allows the granting of credit or deferred payment, with a special guarantee that if the acceptor does not pay, you can recover it by forced litigation, not only against the acceptor but also against other signers of the document, who respond in solidarity.

The correct form of the bill of exchange requires that it has been issued in official form or stamp issued by the State, and its amount is proportional to the amount reflected in it.

The bill of exchange is governed by the Civil Code. In this way, unpaid bills of exchange involve monetary damages but not criminal, which may include the seizure of all the debtor's assets, excluding assets essential to live. Against any claim filed demanding payment of a bill of exchange, the judge will require the debtor to make payment within 10 days and, if necessary, order the freezing of assets of the debtor sufficient to cover the debt amount and the amount estimated to be generated by way of default interest, costs, and expenses if the debtor defaults. If the letter is not accepted, a claim of default may take up to 4 years.

Endorsement is the act by which the drawer transfers to another person, or endorsee, the receivables arising from the draft. The endorser is, therefore, the beneficiary of the bill of exchange and, after the endorsement, becomes the holder, payee, or holder thereof. A signature will be essential for the endorsement to be effective.

In order to ensure payment of the bill of exchange, there is also the possibility that they are endorsed. The guarantor assumes responsibility with the drawee to pay the bill of exchange. The guarantor is only liable for the payment of the letter if it has been accepted by the drawer.