DEFINITION of 'Due Bill'

A financial instrument used to document and identify a stock seller's obligation to deliver a pending dividend to the stock's buyer. A due bill is also used when the stock's buyer is obligated to deliver a pending dividend to the stock's seller. Due bills function as promissory notes and resolve the problem of ensuring that the correct owner receives a stock's dividend when the stock is traded near its ex-dividend date. Due bills can be used in a similar fashion when a company issues rights, warrants or stock splits.

BREAKING DOWN 'Due Bill'

For example, a buyer that purchases a stock ex-dividend, but before the dividend is actually paid, would provide a due bill to the seller stating that the dividend payment belongs to the seller. On the other hand, if a buyer purchases a stock before the ex-dividend date, he or she would be entitled to the dividend, but if he or she is not listed as the owner on the record date, the seller would receive the dividend. Because the buyer is the rightful recipient of the dividend, the seller would issue a due bill to the buyer.

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