Olivia is the Head of Legal at Lawpath, where she helps Australian businesses navigate complex legal challenges with practical, commercially minded advice. She specialises in employment matters, contract drafting, pre-litigation strategy, dispute resolution, commercial law and startup compliance, and has supported clients across technology, healthcare, professional services and retail. Olivia is passionate about making legal services accessible, personable and effective for every client.
A bill of exchange is a signed, written order from one party (the drawer) telling another party (the drawee) to pay a fixed amount of money to a named person or to the bearer, either on demand or on a set future date. In Australia, every bill of exchange is governed by the Bills of Exchange Act 1909 (Cth).
Here’s the catch. Most people who search this have just been handed one, or asked to sign one, and the paperwork looks like it was written for a 1909 shipping clerk. That’s because it was. The good news is the rules are short, and once you know who is liable and when, a bill stops being scary.
- A bill of exchange is an order to pay, not a promise to pay. The drawer tells the drawee to pay. A promissory note is the instrument where someone promises to pay themselves.
- The drawee owes nothing until they accept. Signing the bill as “accepted” is what makes the drawee primarily liable. Before that, the drawer carries the risk.
- Bills can be sold on. The holder can endorse a bill to a bank or financier, and a holder in due course can demand payment even if the original sale went sour.
- Cheques now live under a different Act. Since 1986, Australian cheques have been governed by the Cheques Act 1986 (Cth), not the Bills of Exchange Act.
- Use wet ink. The Bills of Exchange Act is exempt from the main e-signature law, so an electronically signed bill rests on shaky ground.
What is a bill of exchange, in plain English?
Think of it as a written instruction with legal teeth. Section 8 of the Act says a bill of exchange must be an unconditional order in writing, addressed by one person to another, signed by the person giving it. It must require payment of a sum certain in money, on demand or at a fixed or determinable future time, to a specified person, to their order, or to the bearer.
Every word in that definition does a job. “Unconditional” means you can’t write “pay if the goods arrive in good condition.” “Sum certain” means a real number, not “the balance owing.” Miss either and you don’t have a bill. You have an ordinary contract, which is enforceable in a different (and slower) way.
Plenty of articles, including an older version of this one, call a bill of exchange a “written IOU.” That’s wrong, and the difference matters. An IOU acknowledges a debt. A bill of exchange orders someone else to pay it, and it can be passed from hand to hand like cash. That transferability is why the law around it is so strict.
Who are the parties to a bill of exchange?
Three names appear on the face of most bills. The drawer writes and signs the bill. The drawee is the party ordered to pay. The payee is the party who gets the money.
Two parties is just as common as three. A supplier will draw a bill on its customer and name itself as payee. Same document, same rules. The “always three parties” line you’ll see elsewhere comes from textbook examples, not how bills get used.
More names get added as the bill moves. Once the drawee signs to accept, they become the acceptor. Anyone who signs the back to transfer it is an endorser. Whoever has it in hand, entitled to payment, is the holder. Each signature adds a person the holder can chase.
| Party | What they do | When they’re liable |
|---|---|---|
| Drawer | Writes and signs the bill | If the bill is dishonoured and they receive proper notice |
| Drawee | Receives the order to pay | Not liable on the bill at all until they accept it |
| Acceptor | A drawee who has signed to accept | Primarily liable to pay on the due date |
| Endorser | Transfers the bill by signing the back | If the bill is dishonoured and they receive proper notice |
| Holder | Has the bill and the right to payment | Not liable; this is the party who gets paid |
The row people miss is the drawee’s. The original version of this post said responsibility to pay “rests entirely with the drawee.” It doesn’t. An unaccepted bill puts the drawer on the hook, and the drawee can simply refuse.
How does a bill of exchange work, step by step?
Most bills follow the same five-stage life. Skip a stage and you can lose your right to recover.
- Drawing. The drawer writes the bill, fills in the amount, due date and payee, and signs it.
- Acceptance. The drawer presents it to the drawee, who signs across the face (usually the word “accepted” plus a signature). For a bill payable “after sight,” this step is compulsory because it fixes the due date.
- Negotiation. The holder can transfer the bill. An “order” bill needs an endorsement on the back plus delivery. A bearer bill only needs delivery.
- Presentment for payment. On the due date, the holder presents the bill to the acceptor and asks to be paid. Payment in full discharges the bill.
- Dishonour (if it goes wrong). If acceptance or payment is refused, the bill is dishonoured. The holder must give notice of dishonour to the drawer and every endorser quickly, or those parties are released.
A worked example
These businesses are made up, but the mechanics are real.
Bluegum Timber sells $48,000 of hardwood to Northside Joinery on 90-day terms. Bluegum owes about the same amount to Kestrel Haulage, its freight contractor. So Bluegum draws a bill of exchange ordering Northside (drawee) to pay $48,000 to Kestrel (payee) 90 days after the date of the bill. Bluegum is the drawer.
Northside signs “accepted” across the front. From that moment, Northside is the acceptor and primarily liable. Bluegum hands the bill to Kestrel, which settles Bluegum’s freight debt.
A month later Kestrel needs cash for a new truck. It endorses the bill to its financier, which pays Kestrel a bit less than $48,000. That discount is the financier’s return. On day 90, the financier presents the bill to Northside.
Now the twist. Say some of the timber was warped and Northside refuses to pay. Bad luck for Northside. The financier paid value in good faith and holds the bill as a holder in due course, so Northside’s complaint about the timber is no defence against it. Northside pays the financier and then takes up the warped timber with Bluegum. If Northside can’t pay at all, the financier gives notice of dishonour and can chase Kestrel or Bluegum instead.
That twist is the single biggest reason to slow down before you accept a bill. You’re agreeing to pay whoever ends up holding it, whatever happens with the goods.
What makes a bill of exchange valid in Australia?
Run any bill against this checklist before you sign it or rely on it. If one item fails, assume it won’t work as a bill.
- It’s in writing, on a physical document.
- It’s an order (“pay”), not a request (“please pay if convenient”) or a promise (“I will pay”).
- The order is unconditional. No “subject to,” “provided that” or “on delivery of.”
- It’s addressed by the drawer to a named drawee.
- The drawer has signed it.
- The amount is a sum certain in money. Interest at a stated rate is fine. “Whatever’s owing” isn’t.
- It’s payable on demand, on a fixed date, or at a fixed period after a stated event or after sight.
- The payee is identified with reasonable certainty, or the bill is payable to bearer.
Some things people assume are required aren’t. A bill isn’t invalid just because it’s undated, or because it doesn’t say what the payment is for. Founders tend to over-engineer the wrong parts and leave out the “unconditional” test, which is the one that actually trips bills up.
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What does the Bills of Exchange Act 1909 actually cover?
The Bills of Exchange Act 1909 is a Commonwealth law, so the same rules apply in every state and territory. It was modelled closely on the UK’s 1882 Act. That’s why it reads like it does, and why so much UK commentary still floats around Australian search results.
Most of the Act deals with bills: what counts as one, who has capacity to sign, negotiation, the duties of the holder, liability, discharge and lost bills. It also covers the “bill in a set,” an old trade practice of issuing duplicate copies so one survives a sea voyage. A separate part applies many of the same rules to promissory notes.
It also sorts every bill into one of two buckets. An inland bill is drawn and payable in Australia (or drawn here on someone resident here). Everything else is a foreign bill. Foreign bills carry an extra step: if one is dishonoured, it needs to be formally protested, which means a notary records the refusal. Skip the protest and the drawer and endorsers can walk away.
What the Act no longer covers: cheques
Cheques were pulled out of the Bills of Exchange Act and moved into their own law, the Cheques Act 1986 (Cth). So when a UK source or an older blog tells you a cheque is a type of bill of exchange, that’s true in England. In Australia, cheques have their own rules on crossing, presentment and dishonour.
Can you sign a bill of exchange electronically?
Treat the answer as no. The Electronic Transactions Act 1999 (Cth) is the law that normally lets an electronic signature stand in for ink. The Electronic Transactions Regulations 2020 exempt the Bills of Exchange Act from that law’s writing and signature rules, and the exemption is still there in the current regulations.
In practice, that means a DocuSign bill of exchange has no statutory safety net. It might hold up as a contract. It might not work as a negotiable bill. If the whole point is to give a financier something it can rely on, print it, sign it in ink, and keep the original somewhere safe.
Bill of exchange vs promissory note vs cheque vs invoice
These four get mixed up constantly. The quickest way to tell them apart is to ask who is speaking and what they’re saying.
| Bill of exchange | Promissory note | Cheque | Invoice | |
|---|---|---|---|---|
| What it says | “Pay this person” | “I promise to pay” | “Bank, pay this person” | “Please pay us” |
| Who signs it | Drawer | The person promising to pay | Account holder | Nobody needs to |
| Governing law | Bills of Exchange Act 1909 | Bills of Exchange Act 1909 | Cheques Act 1986 | Ordinary contract law |
| Transferable? | Yes, by endorsement or delivery | Yes, by endorsement or delivery | Yes, unless crossed “not negotiable” | Only by assigning the debt |
| When paid | On demand or a set future date | On demand or a set future date | On demand | Per your payment terms |
If you’re lending money rather than selling goods, a promissory note template is almost always the simpler instrument. There’s no drawee to chase for acceptance, because the person who owes the money signs the promise directly. Our guide to the difference between a promissory note and a loan agreement covers when you need the fuller document.
All of these sit in the wider family of negotiable instruments, which share the same core idea: a piece of paper that carries a right to be paid.
Which type of bill of exchange do you actually need?
You’ll see a long list of “types” online. In reality you’re making three decisions, and each one has a sensible default.
When should it be paid? A sight (or demand) bill is payable as soon as it’s presented. A time bill is payable at a fixed date or a set number of days after sight. If you’re giving trade credit, you want a time bill. A sight bill gives the buyer no breathing room, so there’s little reason to use one over a straight bank transfer.
Should it travel with shipping documents? A clean bill stands alone. A documentary bill is attached to shipping documents like the bill of lading, and the bank only releases them once the buyer pays (documents against payment) or accepts (documents against acceptance). For exports to a buyer you’ve never dealt with, documents against payment protects you better. Documents against acceptance hands over the goods on a signature.
Whose credit is behind it? A trade bill rests on your customer’s promise. A bank-accepted bill has a bank’s name on it as acceptor, which is why financiers will discount it at a better rate. An accommodation bill is signed by someone lending their name without getting anything in return. Be very careful signing one of those: the Act makes accommodation parties liable to a holder who gave value, even though they got nothing out of the deal.
Where do bills of exchange go wrong?
The problems almost never come from the law itself. They come from paperwork done casually by people who assumed a bill works like an invoice.
Slipping a condition in. “Pay on completion of installation” feels reasonable. It also turns your bill into an ordinary contract claim. Keep the conditions in your supply agreement and keep the bill clean.
Never getting it accepted. A drawer who hands over an unaccepted bill has a piece of paper the drawee can ignore. If you’re relying on the customer to pay, get their acceptance signature on the face before the goods leave.
Sitting on a dishonour. Notice of dishonour has to go out within a reasonable time, and the Act measures that in days, not weeks. Wait a month while you “give them a chance,” and the drawer and endorsers may be released. You’d be left with the one party who already refused to pay.
Accepting a bill while a dispute is brewing. Once you’ve accepted and the bill has been sold to a holder in due course, quality complaints about the goods won’t stop you having to pay. Raise any defects before you sign, not after.
Mistaking the bill for security. A bill proves the debt. It doesn’t give you any claim over the customer’s assets. If they go into liquidation, you’re an unsecured creditor holding a very formal-looking piece of paper.
Do you even need a bill of exchange?
For most Australian small businesses selling on credit at home, probably not. A bill of exchange earns its place in three situations: you’re exporting and your buyer’s bank works with documentary collections, you want to sell the debt to a financier before it’s due, or a lender or counterparty insists on one.
Outside those, the tools that actually protect your cash flow are cheaper and simpler. Start with written terms of trade that set payment dates, interest on late payments and your right to stop supply. For company customers, add a director’s guarantee, so a person stands behind the company’s promise to pay.
When an invoice goes unpaid anyway, a well-drafted letter of demand resolves a surprising number of disputes before anyone files in court. You can create all three on Lawpath in minutes, from a library of 550+ legal document templates, without booking a lawyer for each one.
Frequently asked questions about bills of exchange
Is a bill of exchange legally binding in Australia?
Yes, if it meets the definition in section 8 of the Bills of Exchange Act 1909 (Cth). The acceptor is primarily liable to pay. The drawer and any endorsers are liable if it’s dishonoured and they receive proper notice. A document that misses the definition may still bind as a contract, just not as a bill.
Is a cheque a bill of exchange in Australia?
Not any more, legally speaking. Australian cheques are governed by the Cheques Act 1986 (Cth), which has its own rules on crossing, presentment and dishonour. In the UK, a cheque is still treated as a type of bill of exchange, which is why you’ll see conflicting answers online.
What’s the difference between a bill of exchange and a promissory note?
A bill of exchange is an order from the drawer telling someone else to pay. A promissory note is a promise by the maker to pay directly. Bills involve a drawee who must accept before they’re liable. Promissory notes don’t, so they’re the simpler option for straightforward loans.
Who pays a bill of exchange?
The drawee pays, but only once they’ve accepted the bill by signing it. An accepted drawee (the acceptor) is primarily liable on the due date. If they don’t pay, the holder can turn to the drawer and any endorsers, provided notice of dishonour went out in time.
Can a bill of exchange be signed electronically?
It’s risky. The Electronic Transactions Regulations 2020 exempt the Bills of Exchange Act from the e-signature rules in the Electronic Transactions Act 1999 (Cth). An electronically signed bill has no statutory backing. Sign the original in wet ink and keep it safe.
What happens if a bill of exchange is dishonoured?
The holder must give notice of dishonour to the drawer and every endorser within a reasonable time, measured in days. Foreign bills also need a formal protest by a notary. Do both promptly and the holder can sue any liable party. Delay and the drawer and endorsers may be released.
Can I transfer a bill of exchange to someone else?
Yes. An order bill is transferred by signing the back (endorsing it) and handing it over. A bearer bill only needs to be handed over. Businesses often endorse bills to a bank or financier at a discount to get cash before the due date.
Are bills of exchange still used in Australia?
Yes, though far less than they once were. You’ll mostly see them in export and import deals using documentary collections, and in some bank finance facilities built around bank-accepted bills. For everyday domestic credit sales, most businesses rely on terms of trade and invoices instead.
Does a bill of exchange need to be dated?
No. Under the Act, a bill isn’t invalid just because it’s undated. In practice you should always date it, because a time bill payable “90 days after date” has no due date without one. Undated bills create arguments you don’t need.
Get your bill of exchange right the first time
If you’ve read this far, you already know more about bills of exchange than most people who sign them. You’re not behind for not knowing the 1909 rules off by heart. Almost nobody does, and the parts that matter fit on one page: get it accepted, keep it unconditional, sign in ink, and act fast if it’s dishonoured.
If you’re about to draw, accept or endorse one, a quick check by a lawyer costs far less than a bill that won’t hold up. Get a fixed-fee quote from a Lawpath lawyer and have your bill of exchange reviewed before you sign.
