Bill of Lading vs. Bill of Exchange: An Overview

A bill of lading lists the details of what items are being received by a shipper and where they are being shipped to; it also serves as a receipt for the second party once the items have been received.

By contrast, a bill of exchange is documentation of payment, much like a promissory note, that legally requires the buyer to pay an agreed-upon amount by a certain date.

Key Takeaways

  • A bill of lading is proof of a contract between a shipper and a seller and includes details about what is being shipped, who the buyer is, and where the buyer is located, in addition to a receipt for the buyer.
  • A bill of exchange includes what items are being shipped and how many are in the order, an invoice requesting payment and details about when the payment is due and often bank information to fulfill the charge.
  • Both a bill of lading and a bill of exchange provide the seller, the carrier, and the buyer with critical information needed to complete the process of selling, shipping, paying for, and receiving goods.

Bill of Lading

A bill of lading is a document from a shipper of goods that describes the goods being shipped, the number of goods and where they are being shipped to. It can resemble a standard store receipt or a train ticket.

The bill of lading also serves as a receipt when the goods being shipped arrive at their destination. The destination of the goods is also noted on the bill of lading. A bill of lading is evidence of shipment and proof of receipt of the goods by the carrier from the company or individual providing the goods for shipment.

Bill of Exchange

A bill of exchange is a document used in international shipping, a negotiable instrument that is created by the seller or exporter and given to the buyer or importer. It legally binds the buyer to pay an agreed-upon sum of money to the seller on a specified date, often upon receipt of goods or on a specific day following the receipt of goods (for example, 10 days after receipt of goods).

Bills of exchange are similar to checks in that they can be drawn on banks and can be transferred through an endorsement of the bill of exchange. When a bill of exchange is issued by a bank, it is referred to as a bank draft; if issued by an individual, it is commonly referred to as a trade draft. A bill of exchange details the goods shipped to the buyer, the invoice amount for payment, the date payment is due, and bank details, since the buyer usually makes a payment from his bank to the seller's bank.

Both a bill of lading and a bill of exchange are important deterrents to asset theft when sellers are shipping items to buyers, often through a third party.

Bill of Lading vs. Bill of Exchange Example

For example, a local bakery is shipping pastries to a coffee shop in another city, using a third-party shipper. The shipper would need to look over the bill of lading to make sure the correct number of pastries are included in the order, that the payment information is specified, and that the location of the buyer is clear. Once the shipper delivers the pastries to the coffee shop, the bill of lading would be handed over to the coffee shop as proof that it had received the goods.

To the same example, the third-party shipper could give the coffee shop a bill of exchange. Like the bill of lading, it would provide detailed shipping information. But it also provides more financial details than a bill of lading, as well as legally binding the coffee shop to pay the bakery the amount previously agreed upon. The bill of exchange would also include an invoice, a payment due date, and even the coffee shop's banking information to complete the transaction.