A share draft or a bill of exchange is a financial document that is drawn up in a strictly ordered form, containing an unconditional order from the lender (drawer) to the borrower (drawee) to pay a certain amount of money indicated in the bill of exchange to a third party (remitter) at the agreed time or to the bearer of the bill of exchange. A draft check may be one of the documents of title of a foreign trade agreement.
A draft is defined as a document issued in the established form, which contains an unconditional proposal of one party – the drawer, to the other party, a drawee, to pay a certain amount of money to a third party, the drawer (remitter) within the specified period. Sometimes the word “offer” is replaced by the word “order”.
A share draft (bill of exchange) must contain:
- the name of the “bill” included in the text of the document and expressed in the language in which this document is drawn up;
- a simple and unconditional offer to pay a certain amount;
- name of a payer;
- indication of the due date;
- an indication of the place where the payment is to be made;
- the name of the person to whom or on the order of whom the payment should be made;
- an indication of the date and place of drawing up the bill of exchange;
- the signature of the person who issues the draft (the drawer).
This type of securities has the following features:
- Indisputable. The party that has undertaken the obligation to pay must repay the debt in any situation. Otherwise, collection through the court is allowed.
- Monetary. Repayment of obligations is carried out in monetary terms (in-kind exchange of goods is not allowed).
- Reversibility. The paper is transferred through a transfer note without any restrictions.
- Abstractness. The document has nothing to do with other transactions. If he was handed over, he immediately acquires legal force, regardless of the performance by both counterparties of additional obligations.
Bills are issued in the form of strict accountability with several degrees of protection to ensure that there are no forgeries. They allow you to make deals without factoring, i.e. without involving banks as a guarantor.
Types of share drafs
In addition to promissory bills, there are transferable, bank, treasury securities that differ by the issuer, the scheme of presentation and redemption. The document can be considered an order to return the debt to the bearer, to a third party. The issue depends on the ultimate purpose of the security, the type of organization of the issuer. Thus, treasury bills are always issued by the state in order to attract funds to pay off its expenses.
There are several types of securities of this type:
- unconditional. Paid in cash at the time of presentation.
- warranty. Issued without exchange of funds, under the guarantee of conducting the specified economic activity.
- commercial. Usually issued on the security of goods, other material values.
- protested. Requires a notarized refusal to pay.
- sight draft. According to the terms of the document, it is redeemed immediately after presentation to the issuer.
- urgent. Has a fixed period of validity.
- financial. Used in relationships between banks.
- private. Issued by an individual.
There are variants of friendly drafts used for mutual lending to two or more individuals. As well as domiciled bills, which allow the transfer of the right to redemption to third parties with an indication of another organization responsible for the obligations.
Types of draft transactions
The banking system most often turns out to be a promissory note issuer. Securities allow banks to attract even more funds for the issuance of loans and other financial transactions. The acquirers are legal entities / individuals, regardless of the type and scope of their activities.
The turnover of share drafts implies the following operations:
- release. The issuer is the state, a financial institution, an organization with commercial activities.
- sale. Implementation for the purpose of collecting investments, financing projects.
- accounting. Strict control of the issued / returned bills of exchange is assumed in order to prevent the appearance of counterfeit documents on the market.
- Issuance. Bills can be paid instead of cash (as agreed by the parties).
- acceptance with payment of the stipulated amount. Redemption of a security.
- application for mutual drafts between enterprises. This form assumes the rejection of bank factoring, loan processing.
The list of transactions with promissory drafts and bills of exchange fully coincides with the accounting policy of commercial organizations: each issued document is subject to accounting in a database, where the date of issue / return is subsequently recorded. The issuer is guided by the series and number, which are unique for each document.