Quick Summary
- The drawer is the creditor who creates and signs the bill
- The drawee is the debtor who must accept and pay the bill
- The payee receives the payment (often the same person as the drawer)
- The acceptor is the drawee after accepting liability to pay
- Understanding these roles is crucial for WAEC/NECO exams on negotiable instruments
Understanding the Four Parties to a Bill of Exchange
A bill of exchange is like a written command to pay money. Just as you need different people to complete a bank transfer (sender, bank, receiver), a bill of exchange involves specific parties with distinct roles. Let’s understand each one clearly.
1. The Drawer
The drawer is the person or business that creates the bill of exchange. Think of the drawer as the creditor – someone who is owed money.
Who is the Drawer?
The drawer is typically a seller or service provider waiting for payment. For example, Oando Plc supplies ₦5 million worth of fuel to a transport company on credit. Oando becomes the drawer when they create a bill of exchange to collect this debt.
What Does the Drawer Do?
- Creates the bill: The drawer writes or prints the bill showing the amount owed, due date, and parties involved
- Signs the bill: The drawer’s signature makes the bill official
- Presents for acceptance: Sends the bill to the drawee (debtor) for acceptance
- Receives payment or transfers the bill: Can collect money on due date or sell the bill to a bank before maturity
Example in Practice
Aliko Dangote’s company supplies cement worth ₦10 million to a construction firm. Payment is due in 90 days. Dangote draws up a bill of exchange stating: “On December 15, 2025, pay ₦10,000,000 to Dangote Industries Ltd.” Dangote signs as the drawer.
2. The Drawee
The drawee is the person or company on whom the bill is drawn. Simply put, the drawee is the debtor – the one who owes money.
Who is the Drawee?
The drawee is the buyer or customer who purchased goods or services on credit. Using our earlier example, the transport company that bought fuel from Oando is the drawee.
What Does the Drawee Do?
- Receives the bill: The drawer sends the bill to the drawee
- Examines the bill: Checks if the amount and details are correct
- Decides to accept or reject: The drawee can accept (agree to pay) or dishonor (refuse to pay) the bill
- Returns the accepted bill: If accepting, signs and returns it to the drawer
Example in Practice
Julius Berger Construction Company buys building materials worth ₦20 million from Lafarge Cement. Lafarge creates a bill of exchange and sends it to Julius Berger. Julius Berger is the drawee who must decide whether to accept this payment obligation.
3. The Acceptor
The acceptor is the drawee AFTER accepting the bill. This is not a new person – it’s the same drawee who has now agreed to pay.
How Drawee Becomes Acceptor
When the drawee signs the bill (usually writing “Accepted” and signing with a date), they become the acceptor. This signature is crucial because it creates a legal obligation to pay.
Acceptor’s Responsibilities
- Primary liability: The acceptor is legally bound to pay on the due date
- Payment at designated place: Usually pays at their bank or agreed location
- Maintains funds: Must ensure sufficient money is available when payment is due
- Can be sued if default: If the acceptor fails to pay, the drawer can take legal action
Example in Practice
First Bank receives a bill of exchange from Honeywell Flour Mills for ₦8 million. After examining the bill, First Bank signs it “Accepted, payable at First Bank Marina Branch, signed by Branch Manager.” First Bank is now the acceptor with legal obligation to pay ₦8 million on the specified date.
4. The Payee
The payee is the person or business who will receive the money when the bill is paid. In most cases, the payee is the same person as the drawer, but not always.
When Payee Equals Drawer
In simple transactions, the drawer creates the bill and receives payment, so drawer = payee.
Example: Shoprite sells goods worth ₦2 million to a hotel on credit. Shoprite draws a bill and receives payment when due. Shoprite is both drawer and payee.
When Payee Differs from Drawer
Sometimes the drawer transfers (endorses) the bill to another person before maturity. The new holder becomes the payee.
Example: MTN draws a bill of exchange for ₦50 million against Globacom (drawee). Before the due date, MTN needs urgent cash, so they sell this bill to Zenith Bank for ₦48 million. Now Zenith Bank is the payee who will collect ₦50 million from Globacom on due date.
Complete Transaction Flow: Real Nigerian Example
Let’s see all four parties in action:
Scenario: Unilever Nigeria supplies soap worth ₦15 million to ShopMart Supermarket on 3 months credit.
Step 1 – Bill Creation:
Unilever (drawer) creates a bill stating: “On March 31, 2026, pay to Unilever Nigeria Limited or order the sum of Fifteen Million Naira (₦15,000,000).”
Unilever signs and dates the bill.
Step 2 – Presentation:
Unilever sends the bill to ShopMart (drawee) for acceptance.
Step 3 – Acceptance:
ShopMart examines the bill, writes “Accepted” across the face, signs it, and returns to Unilever.
ShopMart is now the acceptor with legal obligation to pay ₦15 million on March 31.
Step 4 – Discount (Optional):
Unilever needs immediate cash in February. They take the bill to Access Bank.
Access Bank buys the bill for ₦14.7 million (₦300k discount for early payment).
Access Bank is now the payee.
Step 5 – Payment:
On March 31, 2026, ShopMart (acceptor) pays ₦15 million to Access Bank (payee) at the designated bank.
Comparison of All Four Parties
| Party | Other Name | Main Role | Key Action |
|---|---|---|---|
| Drawer | Maker/Creator | Creditor owed money | Creates and signs the bill |
| Drawee | Debtor (before acceptance) | Person who owes money | Receives bill for acceptance |
| Acceptor | Drawee after acceptance | Person legally bound to pay | Signs bill accepting liability |
| Payee | Beneficiary/Holder | Person who receives payment | Collects money on due date |
Additional Parties (Sometimes Involved)
5. The Endorser
When the payee transfers the bill to another person before maturity, they become an endorser. The endorser signs the back of the bill.
Example: GTBank holds a bill and endorses it to UBA. GTBank is the endorser, UBA becomes the new holder/payee.
6. The Endorsee
The person who receives an endorsed bill is the endorsee. They become the new payee.
Example: In the above case, UBA is the endorsee and new payee.
7. The Holder
The holder is whoever currently possesses the bill legally. The holder can be the original drawer or any subsequent endorsee.
Legal Rights and Obligations
| Party | Rights | Obligations |
|---|---|---|
| Drawer | Can sue if acceptor doesn’t pay Can endorse bill to others |
Must pay if acceptor defaults and bill is protested |
| Drawee | Can reject bill if incorrect Can negotiate payment terms |
No obligation until acceptance Must examine bill promptly |
| Acceptor | Can pay before maturity at discount Gets discharge after full payment |
Must pay on due date Cannot revoke acceptance Primary liability |
| Payee | Can demand payment on due date Can sue acceptor for non-payment Can endorse to another party |
Must present bill for payment Must give notice of dishonor if not paid |
Common WAEC Exam Mistakes
WAEC Chief Examiner Reports highlight these common errors:
- Confusing drawee with acceptor – Remember: drawee is BEFORE acceptance; acceptor is AFTER acceptance. They’re the same person at different stages.
- Thinking drawer and payee are always different people – In most bills, drawer = payee. Only when the bill is endorsed does the payee become someone else.
- Cannot explain what each party DOES – Don’t just define. Explain actions: “The drawer creates the bill” not “The drawer is the person who draws the bill” (circular definition).
- Missing the concept of liability – The acceptor has PRIMARY liability (must pay first). The drawer has SECONDARY liability (pays only if acceptor defaults).
- Poor examples – Use complete scenarios with Nigerian companies, amounts in Naira, and realistic situations.
- Confusing bill of exchange with other documents – Bill of exchange is different from promissory note (2 parties) and cheque (different rules).
- Writing unclear answers – Avoid: “Drawee accept bill and become acceptor then pay.” Better: “After the drawee signs the bill accepting liability, they become the acceptor who must pay on the due date.”
Practice Questions
Multiple Choice Questions
1. The person who creates a bill of exchange is called the:
a) Acceptor
b) Drawer ✓
c) Endorser
d) Payee
2. When a drawee signs a bill accepting liability to pay, they become the:
a) Drawer
b) Endorser
c) Acceptor ✓
d) Holder
3. Which party is primarily liable to pay a bill of exchange?
a) The drawer
b) The payee
c) The acceptor ✓
d) The endorser
4. If Dangote Cement draws a bill on First Bank and then sells it to Zenith Bank before maturity, who is the payee?
a) Dangote Cement
b) First Bank
c) Zenith Bank ✓
d) The Central Bank
5. The main difference between a drawee and an acceptor is:
a) They are completely different people
b) The acceptor has signed the bill agreeing to pay ✓
c) The drawee receives payment, acceptor makes payment
d) There is no difference
Essay/Theory Questions
Question 1: Explain the role of FOUR parties to a bill of exchange. (8 marks)
Examiner’s tip: Don’t just define each party. Explain what each one DOES. Include a simple example showing how they interact. Mention: drawer creates bill, drawee receives for acceptance, acceptor agrees to pay (same as drawee after signing), payee receives payment.
Question 2: Distinguish between a drawee and an acceptor. (6 marks)
Examiner’s tip: “Distinguish” means show differences. Explain that drawee is before acceptance (no legal obligation yet), acceptor is after acceptance (legally bound to pay). Mention they’re the same person at different stages. Give a timeline example.
Question 3: Using a suitable example, illustrate how a bill of exchange operates, clearly showing all parties involved. (10 marks)
Examiner’s tip: Create a complete story from start to finish. Use real Nigerian companies and Naira amounts. Show: (1) transaction that creates debt, (2) drawer creates bill, (3) drawee accepts, (4) optional: bill discounted at bank, (5) payment on due date. Label each party clearly.
Question 4: State FIVE obligations of an acceptor of a bill of exchange. (5 marks)
Examiner’s tip: This is “state” so brief points work. Include: must pay on due date, cannot revoke acceptance, must maintain sufficient funds, pays at designated place, primary liability (pays before drawer).
Memory Aids
Remember the parties with “DDAP”:
- Drawer – Draws up the bill (creditor)
- Drawee – Debt owed by this person (before acceptance)
- Acceptor – Accepts the bill (drawee after signing)
- Payee – Paid the money (beneficiary)
To remember who does what:
- Drawer DRAWS (creates) the bill
- Drawee is DRAWN ON (receives the bill)
- Acceptor ACCEPTS (signs agreeing to pay)
- Payee is PAID (receives the money)
Timeline flow:
Drawer creates → Sends to Drawee → Drawee becomes Acceptor (after signing) → Payee collects payment
Quick test: Ask yourself “Who owes money?” (Drawee/Acceptor) and “Who is owed money?” (Drawer/Payee)
Related Topics
To fully understand bills of exchange, study these related topics:
- Essential Features of a Bill of Exchange – Learn what makes a valid bill
- Advantages of a Bill of Exchange – Understand why businesses use this instrument
- Why a Cheque is a Bill of Exchange – See the connection between cheques and bills
- Promissory Note – Compare with bills (only 2 parties: maker and payee)
- Negotiable Instruments – Broader category that includes bills, cheques, promissory notes
Real-World Application
In Nigerian business, bills of exchange are common in:
- Import/Export trade: Exporters draw bills on foreign buyers
- Large credit sales: Manufacturers use bills when selling to distributors on credit
- Banking: Banks discount bills, providing immediate cash to businesses
- Legal disputes: Bills provide clear evidence of debt in court
Understanding these parties helps you know your rights and obligations whether you’re buying or selling on credit in business transactions.