What is Bill of Exchange?
A bill of exchange is a written, unconditional order signed by the drawer instructing the drawee (typically the customer) to pay a specified sum of money to the payee on demand or at a stated future date, used widely in trade finance and B2B settlements.
How It Works
- Three parties: drawer (creditor), drawee (debtor), payee (often the drawer).
- Drawee accepts by signing, creating a binding payment obligation.
- Negotiable: can be transferred or discounted with a bank.
- Governed in Saudi by the Commercial Papers Law.
Saudi Context
Saudi commercial banks discount bills of exchange and trade acceptances as a working capital tool for exporters and trading companies. The Saudi Commercial Papers Law (Royal Decree M/37) defines drawer, drawee, and payee obligations and enables enforcement through the Commercial Court if a drawee defaults on acceptance.
Example
A Saudi exporter draws a SAR 200,000 bill of exchange on a Bahraini customer payable in 90 days. The Saudi bank discounts the accepted bill, advancing SAR 196,000 immediately (4% discount), and collects SAR 200,000 directly from the drawee at maturity.