Due Bill

What Is a Due Bill?

A due bill is a financial instrument used to document and distinguish a stock seller's obligation to deliver a pending dividend to the stock's buyer. A due bill is likewise utilized when the stock's buyer is committed to deliver a pending dividend to the stock's seller. Due bills can be utilized likewise when a company issues rights, warrants, or stock splits.

How Due Bills Work

Due bills function as promissory notes and guarantee that the right owner receives a stock's dividend when the stock is traded close to its ex-dividend date.

For example, a buyer that purchases a stock ex-dividend, however before the dividend is really paid, would give a due bill to the seller expressing that the dividend payment has a place with the seller. The timing of the ex-dividend date is set by the rules of the stock exchange on which the stock is traded. This date is regularly set for two business days prior to the record date. In the event that a company issues a dividend in stock as opposed to cash, the ex-dividend date is set on the primary business day after the stock dividend is paid out.

Then again, in the event that a buyer purchases a stock prior to the ex-dividend date, they would be qualified for the dividend, yet on the off chance that they are not listed as the owner on the record date, the seller would receive the dividend on the payment date. Since the buyer is the rightful beneficiary of the dividend, the seller would issue a due bill to the buyer. This due bill entitles the rights of ownership to the buyer, even however the buyer has not yet been listed as the shareholder of record.

A due bill safeguards the stock's buyer, ensuring the rights of ownership is laid out, whether or not the buyer has been listed yet as the shareholder of record.

What Is the Due Bill Period?

Assume a stock is planning to issue a customary quarterly dividend. A rundown of stockholders of record who will receive the dividend is prepared on the record date. The ex-date is set (normally two days sooner) for when shares will trade on the open market without the right to the dividend. The period beginning on the record date and for the most part ending two days after the fact (four days after the prior ex-date) is the point at which the characters of the holders of record are known and payment is due to them. This is known as the due bill period, during which remittances to investors are due after the stockholders of record are laid out.

Features

• A due bill guarantees that pending dividend payments that are qualified for a certain party are paid even after the party discards its shares in the mediating period.
• The due bill period is that time between the ex-dividend date and the date of record inside which such dividend rights are a likely issue.
• These promissory notes guarantee that shareholders are paid on the ex-dividend date — even assuming they sell their shares before the record date happens.