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Guilherme Mazui

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What is the Difference Between Cheque and Bill of Exchange?

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A cheque and a bill of exchange are both negotiable instruments used for financial transactions, but they serve different purposes and have distinct characteristics. Here are the main differences between them:

  1. Definition and Usage: A cheque is a document used for immediate payments on demand, typically drawn by a specified banker, while a bill of exchange represents a debtor's indebtedness to a creditor and can be drawn on any person, including a banker.
  2. Parties Involved: A cheque involves two parties: the drawer (the person who writes the cheque) and the payee (the person who receives the payment). A bill of exchange involves three parties: the drawer (the person who writes the bill), the drawee (the person who pays the sum specified by the bill), and the payee.
  3. Payment Timing: Cheques are payable on demand, meaning the payment must be made immediately upon presentation. Bills of exchange can be payable on demand or at a specified future date.
  4. Legal Characteristics: Cheques are defined under Section 6 of the Negotiable Instruments Act, 1881, while bills of exchange are defined under Section 5 of the same act.
  5. Transferability and Negotiability: Both cheques and bills of exchange are transferable and negotiable, meaning they can be used by the payee to obtain payment from another party.

In summary, cheques are generally used for immediate payments between individuals or businesses, while bills of exchange are typically used in business transactions and can be payable at a specific future date. Understanding the differences between these financial instruments is essential for individuals and organizations involved in various types of transactions.

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  • What is the Difference Between Cheque and Bill of Exchange?
  • Comparative Table: Cheque vs Bill of Exchange

    • Comparative Table: Cheque vs Bill of Exchange

    Here is a table comparing the differences between a cheque and a bill of exchange:

    Basis of Difference Cheque Bill of Exchange
    Meaning A document used for immediate payments on demand, transferable through delivery. A written document indicating a debtor's indebtedness to a creditor.
    Definition A bill of exchange drawn on a specified banker and not expressed to be payable to the bearer on demand. A document containing an unconditional order, signed by the maker (drawer), directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or the bearer.
    Governing Section Cheque is defined under Section 6 of the Negotiable Instruments Act, 1881. Bill of Exchange is defined under Section 5 of the Negotiable Instruments Act, 1881.
    Drawn A cheque is drawn only on a particular banker. A bill of exchange can be drawn on any person, including a banker.
    Payment Timing Cheques are payable on demand or express order. Bills of exchange allow for deferred payment and can be payable at a future date.
    Parties Involved A cheque involves two parties: the drawer and the payee. A bill of exchange involves three parties: the drawer, the acceptor (drawee), and the payee.
    Legal Characteristics A cheque requires no acceptance and is payable to the bearer. A bill of exchange requires acceptance by the drawee before it becomes payable to the bearer or the order of the payee.
    Transferability Cheques are transferable by delivery. Bills of exchange are transferable by endorsement and delivery.

    Both cheques and bills of exchange are negotiable instruments, meaning they can be transferred from one person to another by simple delivery or by endorsement and delivery.

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    Guilherme Mazui

    Guilherme Mazui is graduated in journalism from the Federal University of Minas Gerais (UFMG) and a master's degree in Communication from the University of São Paulo (USP). In addition, he has experience in advertising writing and has worked as a content editor in several companies.