What is a bill of exchange?

A bill of exchange is a negotiable instrument issued by a business ordering a third party to pay a specific amount of cash to another party on demand or at a specified date, explains AccountingTools. A bill of exchange is mostly used in international trade.

Typically, there are three parties in a bill of exchange transaction, including the drawer, the drawee and the payee, states AccountingTools. The information contained on a bill of exchange includes the title "Bill of Exchange," the payee, an identification number, the drawer's signature, amount and date of payment. The payee can transfer a bill of exchange or sell it at a discounted price to obtain money before the specified date on the bill.