How can a bill of exchange be used to pay a seller in an international transaction?

A bill of exchange is a short-term, negotiable financial instrument used to settle accounts in international trade. It functions as a written order from a seller to a buyer, requiring the buyer to pay a specified sum of money either on demand or at a predetermined future date.1

In modern international transactions, the bill of exchange is often integrated into the letter of credit process to mitigate risk. When a buyer and seller are in different countries, the buyer may instruct their bank to issue a letter of credit, which authorizes payment to the seller once the contract terms—such as the dispatch of goods—are fulfilled.2

A corresponding bank in the seller’s country verifies the necessary documents of title and bills of lading. Once verified, this bank often makes payment to the seller using a bill of exchange. Historically, this allowed merchants to receive payment from bankers by presenting a bill signed by the buyer, who accepted liability for the payment when it matured.13