Bill of Exchange in Export Trade: Format, Types and How Banks Use It
What a bill of exchange is in export, a sample format, sight vs usance and D/P vs D/A, and how banks use it under a letter of credit or a documentary collection.
Short answer: A bill of exchange (draft) is a written order from the exporter to the buyer or the buyer's bank to pay a set amount, either on sight or at a future date. It is used in documentary collections (D/P and D/A) and under many letters of credit, with the shipping documents attached.
- Drawn by
- Exporter (drawer)
- Drawn on
- Buyer, or the issuing bank under an LC
- Tenor
- At sight, or usance (e.g. 90 days after B/L date)
- Used in
- D/P and D/A collections, letters of credit
What it is
A bill of exchange is a negotiable instrument — a formal, unconditional order from the exporter (the drawer) instructing the buyer or the buyer's bank (the drawee) to pay a stated sum, either on demand or at a fixed future date. Under an LC or a documentary collection, it's what actually gets negotiated, accepted, or discounted by banks — distinct from the commercial invoice, which bills the goods but isn't itself a negotiable payment instrument.
It matters most under usance (deferred payment) terms and documentary collections, where the bill of exchange formalizes exactly when and how much the buyer's bank commits to pay.
Required fields
At minimum: the drawer (exporter) and drawee (buyer or buyer's bank), the amount and currency, the tenor (sight — payable on presentation — or usance, payable at a fixed number of days after sight or after the bill of lading date), the date and place of issue, and a reference to the underlying invoice or LC.
Under an LC, the bill of exchange's tenor and amount must match what the credit specifies — a usance bill drawn when the LC calls for sight payment (or vice versa) is a straightforward discrepancy.
Bill of exchange format (sample)
Banks usually supply their own pre-printed form, but the wording follows the same pattern. Bills are traditionally drawn in a set of two, "first" and "second" of exchange; paying one cancels the other.
Sample (usance bill under an LC): "Exchange for USD 25,000.00. Mumbai, 15 November 2026. At 60 days after sight of this FIRST of Exchange (SECOND of the same tenor and date being unpaid), pay to the order of [Negotiating Bank] the sum of US Dollars Twenty-Five Thousand only. Drawn under [Issuing Bank] Letter of Credit No. [LC number] dated [LC date]. To: [Issuing Bank], [City]. For [Exporter name], Authorised signatory."
| Part of the bill | Sample wording | Must match |
|---|---|---|
| Amount in figures | Exchange for USD 25,000.00 | Invoice amount (or the part being drawn) and LC field 32B |
| Place and date of issue | Mumbai, 15 November 2026 | On or after the invoice date |
| Tenor | At sight / At 60 days after sight / At 90 days after B/L date | LC field 42C or the sales contract |
| Payee | Pay to the order of [Negotiating Bank] | Your bank's instructions |
| Amount in words | US Dollars Twenty-Five Thousand only | Amount in figures |
| Drawn under clause | Drawn under [Issuing Bank] LC No. … dated … | LC number (field 20) and issue date |
| Drawee | To: [Issuing Bank] (LC) or [Buyer] (collection) | LC field 42a |
| Drawer's signature | For [Exporter name], Authorised signatory | Beneficiary name in LC field 59 |
Types of bill of exchange in export
Two questions decide the type: when payment is due (tenor) and what the buyer must do to get the shipping documents.
| Type | What it means | Used for |
|---|---|---|
| Sight bill | Payable when presented | Sight LCs and D/P collections |
| Usance (time) bill | Payable a fixed number of days after sight or after the B/L date | Usance LCs and D/A collections; gives the buyer credit |
| Documentary bill | Travels with the shipping documents (invoice, B/L, etc.) | Almost all export bills |
| Clean bill | No shipping documents attached | Advance payments, services, or documents sent direct to the buyer |
| D/P (documents against payment) | Bank releases documents only when the buyer pays | Documentary collections under URC 522 |
| D/A (documents against acceptance) | Bank releases documents when the buyer accepts the usance bill | Documentary collections; higher risk for the exporter |
Under a letter of credit vs a documentary collection
Under a letter of credit, the bill is drawn on a bank: the issuing bank, the confirming bank or the bank named in field 42a. UCP 600 Article 6(c) says a credit must not be issued available by a draft drawn on the applicant (the buyer). If the LC is payable at sight and field 42C doesn't ask for a draft, you may not need one at all.
Under a documentary collection (D/P or D/A), there is no bank guarantee. The bill is drawn on the buyer, and the banks only pass documents and payment along under ICC's Uniform Rules for Collections (URC 522). The bill of exchange is what the buyer pays or accepts to get the documents.
Common mistakes
Drawing the bill for an amount that doesn't match the commercial invoice or the LC's available amount. Getting the tenor wrong relative to what the LC specifies. Missing the drawee designation the LC requires — some credits specify the bill must be drawn on the issuing or confirming bank, not the buyer directly.
How it must match other documents
The amount on the bill of exchange should tie to the commercial invoice value (or the portion being financed under the LC). The tenor should match what the LC specifies, and the drawee should be exactly who the credit names — a bank, not the buyer, in many LC structures.
How Bilexor helps
Bilexor keeps your commercial invoice value and buyer details on one shipment record, so the figures your bank needs to prepare a bill of exchange for negotiation or discounting come from a consistent source.
Informational only — not banking advice. Confirm bill of exchange requirements, tenor, and drawee designation with your bank before presenting documents under an LC or collection.
Frequently asked questions
What's the difference between a sight bill and a usance bill of exchange?
A sight bill is payable as soon as it's presented and accepted. A usance bill is payable at a fixed future date — commonly a set number of days after sight or after the shipping date — used for deferred payment terms.
Who signs the bill of exchange?
The exporter (drawer) draws and signs it; the buyer or buyer's bank (drawee), as named on the bill, accepts it by signing to acknowledge the payment obligation.
What is a bill of exchange in export?
It is a written, unconditional order from the exporter to the buyer or the buyer's bank to pay a stated amount, at sight or on a future date. It travels with the shipping documents and is what the bank presents for payment or acceptance under an LC or a documentary collection.
Is a bill of exchange required under every letter of credit?
No. You only need one if the credit calls for a draft, usually in fields 42C (drafts at) and 42a (drawee). Many sight-payment credits don't require one.
Can a bill of exchange under an LC be drawn on the buyer?
No. UCP 600 Article 6(c) says a credit must not be issued available by a draft drawn on the applicant. Under an LC the drawee is a bank, as named in field 42a.
What do 'first of exchange' and 'second of exchange' mean?
Bills are traditionally drawn in a set of two identical copies, often sent by separate couriers. Once either one is paid, the other becomes void. That is why the wording reads 'SECOND of the same tenor and date being unpaid'.
What is the difference between a bill of exchange and an invoice?
The commercial invoice bills the buyer for the goods. The bill of exchange is the payment instrument: an order to pay that a bank can present, accept, negotiate or discount. Its amount should tie to the invoice.
Sources
- ICC Uniform Customs and Practice for Documentary Credits (UCP 600)
- ICC Uniform Rules for Collections (URC 522)
- Negotiable Instruments Act 1881 (India)
Informational only — not legal, banking, tax, or customs advice. Always verify document and LC requirements with your bank, CHA / customs broker, and buyer before presentation.