In the context of business-to-business (B2B) transactions, electronic bills of exchange are a widely used payment method for making purchases. This article explains the specifics of electronic bills of exchange, covering what they are, who they apply to and how they are issued to guarantee payment by direct debit.

What's in this article?

• What are electronic bills of exchange?
  
• What do electronic bills of exchange do?
  
• Who benefits from electronic bills of exchange?
  
• How do electronic bills of exchange work?
  
• What information is required on electronic bills of exchange?
  
• The advantages of electronic bills of exchange
  
• The disadvantages of electronic bills of exchange
  
• What happens if an electronic bill of exchange isn't paid?
  

What are electronic bills of exchange?

Electronic bills of exchange are the paperless version of bills of exchange and are sometimes known as "drafts". These commercial bills are issued by a supplier and instruct a customer to pay for the purchase of goods or services at a later date (the due date indicated).

Standardised by the French Committee for Banking Organisation and Standardisation (CFONB), electronic bills of exchange (also known as automatic drafts) are a popular deferred payment solution among businesses that trade internationally. These bills of exchange allow business customers to receive services or goods from their suppliers without having to pay for them at the time of delivery or purchase. In other words, they are a credit instrument. This formal agreement binds a customer to their supplier and states that the customer will pay for their purchases at a later date.

Note that interest can be accrued with this method of deferred payment.

What do electronic bills of exchange do?

Electronic bills of exchange provide suppliers with a guarantee that payment will be made on the due date. For business customers, payment by electronic bill of exchange enables them to obtain the resources they need to run their business, without having to pay invoices on purchase or delivery.

Issuing bills of exchange is a common practice dating back to the Middle Ages. Since then, the supplier has been known as the "drawer" and the customer as the "drawee".

Who benefits from electronic bills of exchange?

Only professionals and businesses can benefit from electronic bills of exchange. Business-to-customer (B2C) transactions cannot be settled using this method.

How do electronic bills of exchange work?

Electronic bills of exchange are domiciled (i.e. payable through a bank). The supplier first completes the bill of exchange with its bank, which then uploads it to the business customer's bank. The customer decides whether to accept it. By signing, the customer confirms the deferred payment and acknowledges their debt to the supplier. When the due date arrives, the supplier's bank collects the amount due.

What information is required on electronic bills of exchange?

The information required is the same as for standard bills of exchange:

• The words "electronic bill of exchange"
  
• The order to pay the amount due and the invoice amount
  
• The full name, address and bank details of the customer (drawee)
  
• The due date
  
• The full name and address of the supplier (drawer)
  
• The creation date of the bill and its place of issue
  
• The supplier's signature
  

You can learn more about how electronic bills of exchange are created and how they work in Articles L511-1 to L511-81 of the French Commercial Code.

The advantages of electronic bills of exchange

Electronic bills of exchange have several advantages for both business customers and suppliers. One of these is that business customers can pay later for goods purchased or services provided – the amount is only due on the due date. And suppliers have a written guarantee that payment will be deferred. As a result, both parties can manage their cash flow according to the agreement.

Suppliers may require funds in advance, however. If so, they can ask the bank to discount the electronic bill of exchange to obtain the funds they are owed (usually in exchange for a fee).

The disadvantages of electronic bills of exchange

One disadvantage of electronic bills of exchange is their clearance time. Suppliers are not paid at the time of delivery or purchase. The sometimes long payment terms can lead to cash flow problems later down the line if cash flow is not managed well. In addition, there is a risk that customers may not pay on the due date, as required.

What happens if an electronic bill of exchange isn't paid?

In the event of non-payment, the customer's bank issues them with a notice of non-payment and the supplier can take recovery action against them. The supplier's bank gives the original electronic bill of exchange back to them and the supplier is advised to contact a bailiff or a notary to draw up a protest. The customer's full name then appears in a record of payment incidents involving electronic bills of exchange, which affects their rating from the Banque de France.