Legal Definitions - international bill of exchange

An international bill of exchange is a formal, written instruction from one party (the "drawer") in one country to another party (the "drawee," often a bank) in a different country, ordering the drawee to pay a specific sum of money to a third party (the "payee") on a specified date or on demand. It serves as a crucial instrument in international trade and finance, facilitating payments across borders by providing a structured and legally recognized method for transferring funds.

Here are some examples illustrating how an international bill of exchange might be used:

• International Trade Transaction:

  A coffee exporter in Colombia (the drawer) sells a large shipment of coffee beans to an importer in Canada. To ensure payment, the Colombian exporter issues an international bill of exchange, instructing the Canadian importer's bank (the drawee) to pay the agreed amount to the Colombian exporter (the payee) upon the presentation of the shipping documents. This arrangement provides security for the exporter, as the bank is instructed to pay only when the goods have been shipped, and the importer's bank is authorized to release funds upon verification.

• Inter-Company Fund Transfer:

  A multinational technology company headquartered in Japan (the drawer) needs to transfer a substantial amount of capital to its manufacturing subsidiary in Vietnam (the payee) to fund a new production line. Instead of a simple wire transfer, the Japanese parent company issues an international bill of exchange to its primary bank in Japan, ordering the Vietnamese subsidiary's bank (the drawee) to pay the specified sum to the Vietnamese subsidiary on a particular future date. This method provides a formal, documented instruction for the inter-company transfer, aiding in internal accounting and financial control across different national jurisdictions.

• Securing Payment for Services:

  A software development firm in Germany (the drawer) completes a major project for a client in Australia. The German firm issues an international bill of exchange, instructing the Australian client's bank (the drawee) to pay the outstanding project fee to the German firm (the payee) 60 days after the project's completion date. This gives the Australian client time to review the deliverables while providing the German firm with a legally enforceable promise of payment from a financial institution, rather than solely relying on the client's direct payment.