Factoring Companies Guidebook
Bills of Exchange
A bill of exchange (BoE) is a documentary instrument of payment, whereby the payer gives an irrevocable undertaking to pay a fixed sum on a due date to the payee. It is always held by the final payee for presentation to the appropriate bank for payment. It is NOT a guarantee of payment - funds must be available from the stated original source.
Concerns
The Bill must be presented on, or before the due date, otherwise the holder's rights to payment may be diminished.
A bill of exchange can be negotiated, causing a 'chain' of payees. Always note the quality of the original drawer of the Bill.
Bills of Exchange are a useful improvement on open account trading in that they provide a fixed date for payment and provide a useful basis for collection through the courts in the event of non-payment. A concern is that Bills can be discounted through traditional Discount Houses and Banks, to obtain payment prior to maturity, negating our right to payment.
Identification
Bills of Exchange are common in certain industries such as yarn suppliers and should be watched accordingly. Enquiries should be made of the Prospect/Client as to whether any of their customers pay by Bills of Exchange. Review the cashbook for the receipt of such monies and elsewhere for lists of Bills receivable. Seek to identify sums received from Discount Houses.
Treatment
Bills of Exchange should be endorsed over to us immediately they are received in order to prevent double discounting. Clients may wish to continue discounting their Bills in which case the associated debt must be excluded from assignment.
Bills drawn on UK debtors must be sent for special presentation at the Bank. Overseas Bills need to be sent for collection, which can lead to delays and costs.
