Bill of Exchange

Trade Finance

An unconditional written order by one party to another to pay a fixed amount on demand or at a future date.

Sources

1. Bills of Exchange Act 1882, section 3 — The National Archives legislation.gov.uk accessed 23 September 2026

No body owns the term, but a statute defines it, and the definition in section 3 of the Bills of Exchange Act 1882 has been the reference point across the common-law world for well over a century. “A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer.” Every element is load-bearing, and the Act says so in the next breath: “an instrument which does not comply with these conditions, or which orders any act to be done in addition to the payment of money, is not a bill of exchange.” One trap is spelled out — “an order to pay out a particular fund is not unconditional within the meaning of this section”, though naming a fund the drawee may reimburse himself from does not spoil an otherwise unqualified order. An instrument that fails the test is not a lesser bill; it is not a bill at all, and the rights that attach to negotiable paper do not attach to it.

What this source can and cannot settle. A statute binds where its law governs, and a federation describes rather than regulates. Neither makes the term mean the same thing everywhere: another jurisdiction may define the instrument differently, and membership of a trade body is not a qualification. Read the law governing your contract, and the actual terms you are being offered.

Related terms

• Advance Payment
• Aval
• Back-to-Back LC
• Bank Guarantee
• Bill Discounting
• Buyer Credit

From the AJG lexicon archive (July 2026).