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Understanding Negotiable Instruments

Negotiable instruments, such as cheques and bills of exchange, facilitate safe and efficient transactions by providing a written promise or order to pay a specific amount. They enhance trade by reducing the risk of robbery, building trust among business people, and offering legal protection for payments. These instruments also serve as proof of debt and enable easy transfer of money without cash.

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6 views2 pages

Understanding Negotiable Instruments

Negotiable instruments, such as cheques and bills of exchange, facilitate safe and efficient transactions by providing a written promise or order to pay a specific amount. They enhance trade by reducing the risk of robbery, building trust among business people, and offering legal protection for payments. These instruments also serve as proof of debt and enable easy transfer of money without cash.

Uploaded by

nabusadebora
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Negotiable Instruments

Importance
• Aids in keeping records of all transactions made.

• Makes trade easier by enabling safe purchasing and selling of goods.

• Reduces risk of robbery by enabling one to move around with much money compressed in
written paper form instead of cash.

• Encourages credit and confidence among business people, thus building trust.

• Makes it easy to transfer money to someone else for collection.

• Provides legal protection that supports payment through these instruments.

• Allows easy transfer of money through banks.

• Provides proof of payment and keeps track of flow of cash out of a business enterprise.

Cheque
A cheque is a written order by an account holder to their bank instructing them to pay a
specific amount of money on demand to a specific named person.

Uses
• Make payments to specific named persons as ordered by the account holder.

• Transfer money from one person to another without using cash.

Bill of Exchange
A bill of exchange is a written order by the drawer instructing the drawee to pay a certain
amount of money to the payee either on demand or at a fixed future date.

Uses
• Used in transactions to ensure payment for goods or services, especially in credit sales or
international trade.

Importance
• Provides proof of debt between seller and buyer.

• Helps in tracking debts.

• Ensures timely payments.

• Can be transferred to another person as a negotiable instrument.


• Builds trust and smooth transactions in business.

Negotiable Instrument
It is defined as a transferable written promise or order to pay a certain amount of money at
a given set time or on demand.

Uses
• Used to make payments without using cash, e.g., via cheques, promissory notes, or bills of
exchange.

• Acts as proof that one person owes another money.

• Serves as evidence of a promise to pay a fixed amount on a certain date.

• Allows business people to easily borrow and lend money to carry out business operations.

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