What is a bill of exchange?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A bill of exchange is a written order to pay a sum on demand or at a fixed future date; in business finance the term also covers a commercial bill, a form of borrowing. Commercial bills usually need security, such as property or other assets, and are typically used for short-term funding needs, for example to pay for stock.
In the books, a commercial bill is usually recorded like other borrowing, with the amount owed as a liability and the interest as an expense. Its due date goes into the cash flow forecast so the repayment is planned for, and how a bill falling due within 12 months is shown on the balance sheet is a question for your accountant.
Because commercial bills usually need security, the records should show which assets support the borrowing. Keeping the bill, the facility agreement and the security documents together makes it simpler to check the balance, the interest and the due date against the lender's records.
In Australia
business.gov.au's glossary treats bill of exchange as another name for a commercial bill, which it describes as a commercial loan on an interest-only or interest-reducing basis. It says this kind of borrowing normally needs security and suits funding needed for a short time, such as buying stock.
Section 9 of the Corporations Act 2001 lists bills of exchange among a company's financial records, next to cheques, promissory notes, invoices and receipts. Section 286 then requires a company to retain its financial records for a period of 7 years after the transactions in them are complete.
Common mistakes
- Recording the money from a commercial bill as income instead of as borrowing.
- Losing track of a bill's due date, so the repayment arrives before the cash for it has been set aside.
- Filing the bill away from the loan records, so its due date and security are hard to find.
Related terms
Related service
Small business bookkeeping
Your books kept current, every month.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Corporations Act 2001, sections 9 and 286
Federal Register of Legislation, Office of Parliamentary Counsel. Compilation No. 149, 19 September 2026, released 19 September 2026. Checked 15 October 2026.
Based on content from the Federal Register of Legislation at 15 October 2026. For the latest information on Australian Government legislation please go to https://www.legislation.gov.au. Licence: CC BY 4.0.