Trade Bill vs Accommodation Bill: Bills of Exchange Comparison
Bills of exchange can be drawn for trade or financial convenience. Let's compare Trade Bills and Accommodation Bills side-by-side.
head-to-Head Comparison
| Basis | Trade Bill | Accommodation Bill |
|---|---|---|
| Purpose | Drawn to settle a genuine trade transaction (sale of goods or services) | Drawn to provide temporary financial assistance (accommodation) to one or both parties |
| Consideration | Created for a valuable legal consideration (debt due) | Created without any prior consideration (mutual help) |
| Recoverability | The drawer can sue the acceptor if the bill is dishonored | The drawer cannot legally sue the acceptor for recovery if they are in mutual accommodation |
| Discounting | Usually discounted at the bank, and drawer keeps 100% of proceeds | Discounted at the bank, and proceeds are shared between drawer and acceptor in agreed ratio |
The 'No Consideration' Trap
Although accommodation bills lack consideration at drawing, once they are discounted with a third-party bank, the bank becomes a holder for value and can sue both parties if the bill is dishonored.
Common Ground (Similarities)
- Both follow the same legal framework under the Negotiable Instruments Act, 1881.
- Both can be discounted, endorsed, or sent for collection.
Test Your Understanding
Q1: What is the primary motive behind an accommodation bill?
To execute a credit sale
To provide mutual financial help ✅
To export goods
To pay tax
Explanation: Accommodation bills are drawn specifically to provide temporary financial assistance to parties.