Accountancy · Ch 1 — Bills of Exchange
Renewal and Retirement of a Bill
Renewal and Retirement of a Bill
Both renewal and retirement are adjustments made to a bill before its original due date arrives, but they move in opposite directions.
Renewal happens when the drawee is unable to pay on the due date and asks the drawer for more time. If the drawer agrees, the old bill is cancelled and a fresh bill is drawn for the extended period. Because the drawer is effectively lending the money for longer, interest is charged for the extra time — either paid in cash immediately, or added to the face value of the new bill.
Retirement happens when the drawee wants to pay before the due date rather than after it. The drawer/holder, benefiting from receiving the money early, allows a rebate (a discount) for the unexpired period as compensation to the drawee for paying ahead of schedule.
| Aspect | Renewal | Retirement |
|---|---|---|
| Timing relative to due date | Drawee wants more time | Drawee pays early |
| Extra money involved | Interest, charged to the drawee | Rebate, allowed to the drawee |
| Fresh bill drawn? | Yes | No |
Cancelling a bill before its due date and drawing a fresh bill for an extended period, usually with interest charge …
The drawee paying a bill before its due date, in return for a rebate allowed by the holder for the …