What Is a Bill of Exchange?

A bill of exchange (BOE), is a payment agreement between you (the vendor) and a customer (the buyer). This agreement takes the form of a draft issued against a buyers bank account. The company can hold the draft until its maturity date or cash it early at a discounted rate. Bills of exchange are throughout Europe.

Example

Tractor Cievo, a Spanish tractor company, purchased machinery parts form Ernesto Lopez Compania (ELC). The payment agreement between the two companies allows ELC to take money out of Tractor Cievo's bank account in three months as payment for the parts. ELC submits a bill of exchange draft to Tractor Cievo's bank to be cashed either on the maturity date or on an earlier, discounted rate if desired.