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What is accommodation bill?

Usually a bill of exchange is drawn with consideration; the drawer makes an order to the drawer to make payment for the goods supplied to him. Sometime a bill exchange can be accepted without consideration just to help a friend for short term finance or for mutual benefit.

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These bills are discounted by the bank and the proceeds are either retained by the drawer or shared by the two-drawer and drawee. Thus, “accommodation” bill in drawn, accepted without consideration but simply to obligate a party and help him to obtain money by discounting it”.

These bills are also known as “Kite Bills”. For example, Ramprasad is in need of money for a short period. He requests his friend Hariprasad for help; he too has no money and asks him (Ramprasad) to write a bill on him which he will accept. Ramprasad will discount the bill from the bank and use the amount of the bill and Hariprasad will meet his acceptance.

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