Differentiate Between a Bill and a Cheque
Introduction
In commercial transactions, both bills of exchange and cheques are widely used instruments for making payments. While they are similar in some ways, they differ in many aspects such as usage, validity, parties involved, and legal treatment. Understanding the differences between a bill and a cheque is important for students, business people, and banking professionals.
Meaning of Bill of Exchange
According to the Negotiable Instruments Act, 1881, a bill of exchange is a written, unconditional order by one party (drawer) directing another party (drawee) to pay a certain amount of money to a third party (payee) or to the bearer of the bill.
Example:
A (drawer) orders B (drawee) to pay ₹10,000 to C (payee) after 30 days. This is a bill of exchange.
Meaning of Cheque
A cheque is a special type of bill of exchange that is always drawn on a bank and payable on demand. It is also governed by the Negotiable Instruments Act, 1881.
Example:
A writes a cheque for ₹5,000 in favour of B. B can take it to the bank and withdraw the amount immediately.
Key Differences Between Bill and Cheque
| Basis | Bill of Exchange | Cheque |
|---|---|---|
| 1. Drawee | Can be any person or business | Always a bank |
| 2. Payability | Usually payable after a specific time (usance) | Payable on demand |
| 3. Types | Can be inland or foreign | Only an inland instrument |
| 4. Validity Period | Varies, depending on maturity date | Valid for 3 months from the date of issue |
| 5. Acceptance | Needs acceptance by the drawee | No acceptance required |
| 6. Crossing | Cannot be crossed | Can be crossed to ensure safe payment |
| 7. Stamping | Requires stamp duty | Does not require stamping |
| 8. Usage | Used in trade transactions, often as credit | Used for immediate cash payment from bank |
Similarities
- Both are negotiable instruments
- Both involve at least three parties – drawer, drawee, and payee
- Both must be written and signed by the drawer
Conclusion
Although a bill of exchange and a cheque may appear similar at first glance, they differ significantly in their nature, usage, and legal requirements. A bill is often used for future payments in trade, while a cheque is a tool for immediate payment from a bank account. Understanding these differences helps in selecting the appropriate instrument in different business situations.