Bill Finance

There are several financial instruments that are engaged in the day-to-day activities of an enterprise - from bills to tenders to commercial papers. These devices ease business transactions, and are critical in the proper management of working capital.

Individuals come across various instruments like bill finance in due course of conducting business, but no set manual arrives with them. That’s why it’s crucial to know about these in detail.

With a comprehensive understanding of bill finance, business-owners can manage their company’s transactions better and ensure fewer discrepancies and mistakes.

What Is Bill Finance?

It is a binding short-term financial instrument that mandates one party to pay a specific sum of money to another at a predetermined date or on-demand. Also known as a bill of exchange, it essentially denotes, in writing, that one person (debtor) owes money to another (creditor). 

Businesses predominantly use bill finance during international trade, since the degree of uncertainty concerning the payment is considerable in that regard. However, there’s no set law as such, and companies can use a bill of exchange for intra-border trade as well. 

Usually, bill finance does not involve any interest payment. But, a creditor might charge a penalty fee or interest if it does not receive the due amount by a predetermined date. In that case, the issuer must mention these details in such a document. 

Businesses can also leverage their unpaid invoices to avail cash advance through KredX’s invoice discounting service within 24 – 72 hours*. 

How Does Bill Finance Work?

The practice of bill of exchange issuance involves three parties primarily – 

  • Drawee – This is the person or entity on which a bill of exchange is issued, also referred to as the debtor. A drawee needs to accept the bill, which legally binds it to pay a specific sum. 
  • Drawer – This person issues a bill of exchange, usually before undertaking credit sales. A drawee is obliged to pay the due amount to a drawer. This entity must sign a bill of exchange during issuance. 
  • Payee – The payment ultimately goes to a payee. In most cases, a drawer, and payee are the same entity. However, in some cases, a drawer can transfer bill finance to a third-party, in which case that person becomes the payee. 

Usually, when a business sells its goods on credit, a bill of exchange is issued by the drawer to the buyer (drawee). The buyer shall accept this document, assenting to stipulated terms like date and mode of repayment. Thereafter, it becomes legally binding. 

In case, such a bill of exchange involves payment on demand clause, the drawer can ask for settlement of dues any time before the specified date. If not, the buyer or drawee must pay the stated amount by the due date, as mentioned in that bill finance. 

Typically, the payment date is set somewhere between 30 days and 90 days from the date of sales. With premium clients, this period tends to be on the lengthier end. Enterprises, especially small-scale ones, can be cash strapped if payments are late. To resolve such issues, businesses can resort to invoice discounting with KredX.

What Are The Types Of Bill Finance?

The following table discusses the various types of bill finance that are mostly used.



Demand bill

Also known as sight draft, this type of bill finance comes with an on-demand payment stipulation. 

Usance bill

Bills of exchange that feature the clause of payment by a specific date and time. These are also known as time draft. 

Documentary bill

A type of bill of exchange that requires the presentation of supporting documents attesting to the legitimacy of a transaction(s). 

Clean bill

It involves no supporting documents, and therefore, the interest that one needs to pay, if any, is much higher. 

Inland bill

This is issued for transactions within national borders. 

Foreign bill

As opposed to the inland bill, a foreign bill of exchange is issued to debtors beyond national borders. 

Bank draft

When a bank issues a bill of exchange, it’s called a bank draft. In this case, a bank enforces bill payment as per terms. 

Trade draft

Bill finance issued by an individual is called a trade draft. 

Accommodation bill

It refers to the unconditional bill finances. 

Bill finance is a crucial document for businesses that carry out trade on credit. It not only substantiates a transaction, but also provides a legal avenue to creditors, if debtors fail to make good on their debts.


A. The primary difference between bill finance and a promissory note is that the former is issued by a creditor, and the latter by a debtor. Also, a promissory note involves only two parties, whereas a bill of exchange involves three parties.

A. Bill finance essentially denotes the indebtedness of one party to another. A cheque does not imply anything of that sort explicitly. A cheque is payable when presented, whereas a bill of exchange is more like a post-dated cheque.

A. A bill of exchange must contain definite terms of repayment, and it should be signed by both the drawer and the drawee. Moreover, bill finance does not feature any condition.

A. It serves as a proof of transaction and legally binding document of receipt from a debtor. Business-owners can also discount a bill of exchange to avail a cash advance.

A. Yes, bill finance can be transferred to a third-party. In that case, the third-party becomes the payee and also the one who receives the final payment.

A. In that case, the drawer can take legal steps against the drawee to recover payment. Payment delays can be met with an interest payment.