Accommodation Bills

Every bill discussed so far has arisen out of a genuine sale of goods. An accommodation bill is different: it is drawn and accepted without any real underlying trade transaction, purely to help one or both parties raise finance by discounting it with a bank.

In the simplest case, one party accepts a bill purely as a favour, so that the drawer can discount it and use the cash; the accepting party expects to be reimbursed before the due date so that the acceptor is never actually out of pocket.

A more advanced form is a mutual accommodation bill, where both parties draw bills on each other of similar amounts, both discount their respective bills, and share the combined net proceeds in an agreed ratio (very often equally). Because neither bill has a genuine trade debt behind it, each acceptor must independently arrange the funds needed to meet their own acceptance on its due date — the cash received earlier as a share of the discounted proceeds is only part of what is eventually needed. This topic is regularly tested in the Andhr …