what is accommodation bills?

Accommodation Bills

Bills of exchange are use to settle trade debts arising out of sale or purchase of goods and services. These bills are called  'Trade Bills' . This bills are drawn for Consideration, as the last words in the body of  a bills of exchange are  "for value received". These words represent that the drawer make an order upon the drawee to make the payment for the goods or services he has supplied to the latter.

On the other hand "Accommodation bills" are written by a person over other without any business transaction of buying and selling of goods and services and the other person accept that without any consideration. Such bills are drawn, when one party or both the parties are in need of funds to meet their business liabilities. In other words when they are in financial difficulties temporarily. These bills are drawn and accepted for providing necessary finance to the parties concerned and not backed by actual business transaction. So, an acceptor here gives the bill and drawer receives it for no consideration. The acceptor of the bills lends his name to the bill which helps the drawer to get the amount of bills easily.

After the acceptance of the bill the drawer gets it discounted with his banker and gets cash. Before the date of it's maturity the drawer pay back the amount of the bill to the acceptor so that he can meet the bill on due date.

The main object of the accommodation bill is to accommodate a person in need of finance for a short period. The parties to such bills are known as  "accommodation parties".  There is no difference in the language of the Trade Bill and Accommodation bills, rather it is exactly the same.

As accommodation bills are drawn and accepted without any consideration, so such bills are known as  "Kite Bills" or  "Finance Bills". Accommodation bills are not legally enforceable as no valuable Consideration is involved therein.