Commercial Bills Market or Discount Market
A Commercial Bill arises out of a genuine trade transaction. A bill of exchange is an important commercial bill which is drawn by the seller on the buyer for the amount due to him. The maturity period of bill may vary from three to six months. Commercial Bills may be of the following types.
- Demand and usance bills.
- Inland and foreign bills
- Clean and documentary bills.
- Indigenous Bills; and
- Accommodation and Supply Bills.
1. Demand Bills and Usance Bills
A demand bill is one in which no time of payment is specified. So, demand bills are payable immediately when they are presented to the drawee.
Usance bill is otherwise known as time bill. It is payable after the expiry of time specified therein. The time for payment is determined according to the trade custom or usage in practice.
2. Clean bills and documentary bills
Bills that are accompanied by documents of title to goods are called Documentary bills. Examples for documentary bills are railway receipt, lorry receipt, bill of lading, etc. Documentary bills can again be classified into D/A bills and D/P bills.
The documents accompanying D/A bills have to be delivered to the drawee immediately after the acceptance of the bill. In this sense, the D/A bill becomes a clean bill immediately after delivery of documents.
In the case of D/P bills, the documents have to be handed over to the drawee only against payment. Clean bills are drawn without accompanying any document.
3. Inland bills and foreign bills
Bills that are drawn and payable in India on a person who is resident in India are called Inland bills. Bills that are drawn outside India and are payable either in India or outside India are called foreign bills.
4. Indigenous bills
The drawing and acceptance of indigenous bills are governed by native custom or usage of trade. Indigenous bills are used by indigenous bankers to raise or remit money or finance inland trade. These are popularly known as “hundis”. Hundis are known by various names such as Shahjog, Namjog, Jokhani, Termainjogi darshani, Dhanijog and so on.
5. Accommodation bills and supply bills
Accommodation bills are those which do not arise out of genuine trade transactions. In the case of accommodation bills, a person accepts the bill to help the other person to meet his financial obligations. Generally, these bills are not accompanied by any document of title to goods. Banks discount such accommodation bills and money is paid to the bank on the due date.
Supply bills are generally drawn on the Government departments by contractors or suppliers for the goods supplied to them. The peculiar feature of the supply bills is that they are neither accepted by the Government departments nor accompanied by documents of title of goods. However, commercial banks lend to the holder of supply bills by creating a charge on them.