Category Archives for "Commercial Bill Of Exchange"

Commercial Bill Of Exchange Melbourne: Definition, Perks and Disadvantages

Commercial bill of exchange guide

Definition

A commercial bill of exchange refers to a formally written order which binds a party or organization to pay a sum of money to another party on a given date. A bill of exchange can be transferred and can compel one party to pay a third party that was not involved during the process of its formulation. In essence, bill of exchange is a post dated check and usually it does not give interest. However, it may generate interest in case it is not paid on the predetermined date. Bill of exchange enables a trading partner to be paid for its value of goods or services by the business partner.

Advantages of bill of exchange

Commercial bills of exchange have several merits to the parties involved.

1. It provides a framework enabling business transactions between the bank and the borrower.

2. Moreover, bill of exchange provides a convenient means for acquiring goods and services on credit and payment on an agreed later date.

3. Another advantage of using bill of exchange is that it offers a conclusive proof and evidence of transaction. In the event one party fails to make payment, one can follow a legal channel to get justice.

4. In addition, bill of exchange is easily transferrable. This enables the parties involved to settle their bills easily.

5. The other advantage is that it gives the user an easy way of cashing money before date by discounting besides being negotiable.

Disadvantages of bill of exchange

However, bill of exchange also has several disadvantages.

1. The bank can only discount the bill after they are fully satisfied that the other party is reliable and his or her credibility is not in question.

2. Moreover, incase where the bill is dishonored the charges will fully be transferred to the party involved. This is often a burden to the party.

3. Another demerit is that the payment dates are fixed and any default may lead to the party being extra charged.

Alternative forms of finance

The alternative forms of finance are channels that are not within the normal traditional finance system. They include bitcoin, business lending, cryptocurrencies, mini bond and social impact bond. Others include shadow banking, community shares and private placement among others.

Types of loans

There are several types of loans depending on the specific intention or use of the loans. Student loans are given to students to help them cover education cost.

Student loans exist in two forms: federal student loans and private student loans. Federal student loan attracts low interests rates is has friendly repayment terms.

Another type of loan is mortgage loan which is distributed by banks to allow the borrowers to buy homes they cannot afford to buy in cash. Mortgages also attract low interest

Auto loans allow individuals to acquire vehicles on loans from the bank or from the car dealers directly although the car dealers usually give loans with a higher interest.

Secured loans are given to borrowers but it is tied on the property of the individual borrowing. The amount of loan given depends on the value of the property of the individual borrowing.

On the other hand, unsecured loans are not tied to the property of the individual borrowing. Unsecured loans are tied on the amount of income and a solid payback plan.

A more commonly used form of loans is personal loans which are often use for personal expenses and do not have a given purpose. Personal loans are attractive because they can help individual in setting off an immediate need.

Small business loans are convenient for entrepreneurs and aspiring business persons to help them in expanding the businesses. Small business loans are best forms of loans for starting small scale businesses.

The other form of loans commonly used is borrowing from friends. It is not a good form of loan since when one fault in payment it may strin relationship. It is better to use a promissory note to bind the parties involved.

Cash advance is also a form of a loan that can be used by some parties as a short term loan against a credit card. It can be used pay for services and goods through the bank.

Interest rates

Most commercial bill of exchange companies charges an interest rate of three to twenty five percent of the loan depending on the company. Other charges may include charges on default payment, late payment and not submitting right information to the bank.

Conclusion

Bill of exchange involves remitting some money to a client on a specified date. It enables the payee to receive some specified amount of money on loan to pay for his or her goods and services. Bill of exchange has both advantages and disadvantages. In essence, it helps many people to acquire goods and services and make their payment later.