A due bill is a type of financial instrument that functions as a delivery notice which is tendered at the time a security is transferred from the possession of a seller to a buyer. The content of the bill serves to document the terms and conditions related to the delivery of securities by a seller to the buyer of those assets. Depending on the type of security involved, the asset may be delivered with a due bill attached, indicating the responsibility of the seller to deliver earnings to the buyer as the new owner.
The exact content of a due bill will vary, depending on the circumstances surrounding the purchase of an asset. Typically, the document will include data regarding the date of the sale, the names and contact information for both the buyer and the seller, and the exact terms surrounding the purchase. This makes it possible to ensure that all the terms related to the purchase, including the proper disposition of any upcoming dividends associated with the asset, are fulfilled in a timely manner.
One common example of how a due bill works can be seen with the purchase of a security that takes place before the ex-dividend date associated with that security, but with the delivery of the security delayed until after the record date associated with the security. As part of the purchase, the buyer is granted rights to the pending dividend payment connected with those shares. When that dividend payment is issued, a due bill is attached to that payment and sent to the seller, serving as official notice that the seller is to forward that payment to the new owner.
Should the purchase of the security occur after the ex-dividend date, this means that the buyer purchased the asset without requiring the seller to also tender the upcoming dividend as part of the deal. Assuming the dividend is forwarded to the buyer once the record date passes, there may be a due bill attached noting that the dividend should be forwarded to the seller. In many nations, the exact content of the financial instrument will be structured to comply with any governmental regulations that may apply to the terms of the sale and the construction of the document itself.
Not all sales of assets or securities require the use of a due bill. In situations that do not involve transferring rights to an impending dividend or interest payment to the buyer, the instrument may or may not be issued, depending on local laws and customs. Brokers and other financial professionals can advise buyers and sellers if a due bill is appropriate for the type of transaction that is being considered.
