The Difference Between Bill of Lading and Bill of Exchange

There is a myriad of terminology associated with shipping. Naturally, some terms are similar to each other. Knowing the terms is very important for the legal safety of the processes. So much so that inaccurate and incomplete documentation may end up in the ICC International Court of Arbitration. To avoid such problems, it is important to master the terms. A bill of lading and bill of exchange are terms that have similarities. In this article, we explained in detail the differences between the bill of lading and the bill of exchange.

What is the Bill of Lading?

A bill of lading is a record of the goods traded. Also, it is an agreement between the shipper and the shipping company for the transportation of goods. The carrier company provides this document to the shipper. A bill of lading (BOL) is an important legal document for shipping and logistics. This document specifies the goods shipped, where the shipment came from, and where they will go.

A bill of lading is necessary for a freight shipment. The bill of lading has three functions. First, it is a freight service receipt. Besides that, it works as a contract between the carrier and the sender and a document of title.

The bill of lading specifies the details of the carrier and the conditions for transporting the shipment to its destination. Thus, it plays an important role in land, ocean, and air shipments. 

The carrier or an authorized agent issues the bill of lading when the goods leave the port of shipment. Thus, BOL protects the shipper in case the goods are damaged before loading. The document includes details such as sender, receiver, notifying party, goods, and weight. Moreover, this document also functions as a receipt. Shipper verifies loading with BOL. Bill of lading also includes terms of carriage.

Importance of Bill of Lading

A bill of Lading is first and foremost legally binding. So, it is vital for the smooth operation of the shipping process. The bill of lading helps determine freight and customs charges. It is also extremely important to track the link between agents. The BOL indicates the responsibilities of the carrier as well as the details of the goods and the parties. Hence, BOL doesn't just provide the details. It is also a legal document that protects the sender's rights.

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What is a Bill of Exchange?

A bill of lading is a binding agreement for the payment process. This document requires one party to pay a fixed amount to another party on a specified date or upon request. A bill of exchange is an important document for international trade. This document is a negotiable instrument. The seller, or the exporter, issues the bill of exchange to the buyer or the importer.

Generally, three parties are involved in the bill of exchange. These are the drawer, drawee, and payee. The drawer is the party that pays the amount specified in the bill of exchange to the payee. The drawer requires the drawee to pay. Thus, the drawee makes the payment to a third party or drawee. The payee is the party that the drawee pays the amount specified in the bill of exchange.

The bill of exchange plays a major role in international trade. But it is not just a document specific to international trade. It is also a significant document for shipping operations within the country. After the shipment, the exporter's bank forwards the necessary documents and the bill of exchange to the buyer's bank. 

The bill of exchange does not only include the payment request. It also includes a confirmation order for payment. Both the drawer and the drawee must sign the document. The amount and date on the bill of exchange must be definite.

Importance of Bill of Exchange

A bill of exchange is especially important for international shipping. The fact that the bill of exchange is a legal document protects the drawer. Because if the drawee does not make the payment, the drawer can easily recover the amount legally. 

The bill of exchange can be a solution to the drawer's urgent money needs. If the drawer needs money, he can convert the bill of exchange into cash at the bank. But, of course, he has to pay a small amount to the bank for this. Finally, one party can exchange the bill of exchange with another party to adjust the debt. In conclusion, the bill of exchange is a legal document with great advantages, especially for the drawer.

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Difference Between Bill of Lading and Bill of Exchange

We have looked in detail at what a bill of lading and a bill of exchange are. Now we can see the differences between these two terms more clearly. 

The bill of lading details which goods the shipper has received. It also indicates where the goods go. For post-delivery, it functions as a receipt. On the other hand, the bill of exchange is a payment-related document. This document is like a promissory note. Because it legally requires the buyer to pay an agreed-upon amount by a specified date. As a result, the most important difference between a bill of lading and a bill of exchange is their definition.

A bill of lading is a contract between the shipper and the seller. It lists details about the items, the recipient, and the recipient's address, as well as the buyer's receipt. Like BOL, the bill of exchange contains details of the products. It lists what the products are and their quantity on the bill of exchange. But the bill of exchange is basically a receipt demanding payment. Thus, the bill of exchange also includes the due date and bank information.

In conclusion, both BOL and the bill of exchange provide the parties with the necessary information for the trading process. Yet, the purposes of the two documents are completely different from each other.