A bill of exchange is a written financial instrument where one party (the drawer) orders another party (the drawee) to pay a specific amount of money to a third party (the payee) either on demand or at a future date. Think of it as a formal IOU with legal teeth.
Example: A manufacturer in India ships goods to a buyer in Germany. The manufacturer draws a bill of exchange ordering the German buyer to pay $50,000 within 90 days. The buyer "accepts" the bill (signs it), making it a legally binding promise to pay.
Bills of exchange are governed by the Negotiable Instruments Act in most countries. They can be endorsed and transferred to third parties, making them a tradeable instrument. Banks often discount (buy at a reduced price) accepted bills, providing immediate cash to exporters.