Definition of Usance Bills

Section 22 of Negotiable instrument act 1881 provides that “every promissory note, bill of exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity on the third day after the date on which is expressed to be payable”.

Thus, in the case of Usance bills, three days of grace is available to drawee for payment, after the date which it is expressed to be payable in the bill.  Hence, Usance due date of bills will be the last day of grace.

Usance bills are the bills payable by the drawee at a specified period ‘after date’ or ‘after sight ’of the bill. The term ‘after date’ means the due date will be calculated from the date of the bill. The term ‘after sight’ means the due date will be calculated from the date of presentation of a bill for the acceptance of the drawee. A Usance bill shall be adequately stamped at the time when it is drawn as it attracts stamp duty which varies according to the value of the bill and usance period.

Advantages of Usance Bills:

As a business strategy, the suppliers of goods like traders or manufacturing company may offer to sell their products to their clients on credit basis. The supplier of goods raises a bill of exchange expressed to be payable (i.e. 30/45/60/90/120 days etc.) after sight/ date of bills. The client on acceptance of such bills binds himself liable to make the payment of the bills at a fixed future date. The supplier of goods may present the accepted bills to his banker and request the bank to discount such bills so that he gets immediate money for the goods sold by him. The banks discount such bills if they hold reports on both supplier and client that both are of good financial standing. In the case of discounted bills, the drawer’s liability is changed to that of a surety and acceptor of the bill is a principal debtor.

Click below for related articles

1. Definition of a Cheque

2. Definition of bill of exchange

3. Definition of Promissory Note

4. Definition of Usance Bills
5. Difference between a bill of exchange and a Cheque

6. Difference between Bills of Exchange and Promissory Note

7. Difference between Hundi and Hawala

8. Varieties of Bills of Exchange used in trade

9. What is a negotiable instrument?

10. Who are the parties to a negotiable instrument?