Bill of Exchange vs Promissory Note What’s The Difference With Table

The market viability of the document is primary and absolute in terms of characteristics. While a bill of exchange can have different entities as its drawer, drawee, and payee; it can also have one entity serving as its drawee and payee. These are issued by creditors and contain their stamp and signature along with a predetermined date for payment and a fixed amount.

It is mostly used in international trade to help importers and exporters fulfil their transactions. A bill of exchange however is different from a contract but can be used by the parties involved to specify the terms and conditions of a transaction. Although bills of exchange are similar to the promissory note, many differences exist between them. Bill of exchange is also defined in Section 2(2) of the Indian Stamps Act, 1899 and the bill of exchange payable on demand has been explained in Section 2(3) of the Indian Stamps Act, 1899. The last decade has seen an electronic revolution in the banking sphere in India, but negotiable instruments are still used widely.

Differences Between Bill of Exchange and Promissory Note in Points

The person on transfer of the negotiable instrument also becomes entitled to the money and the right to further transfer it. Negotiable instruments are  documents that are exchangeable and have a monetary value which is two of their main characteristics. The negotiable instruments and all their aspects are governed by the Negotiable Instruments Act, in India. This Act defines these instruments and has provisions for each type of them individually.

The Bill of Exchange is the most widely used and also the most complicated of all the negotiable instruments. In simple terms, it is a document that directs the person to whom the bill is directed to pay a specific sum of money to someone else. A negotiable instrument is a commercial document in writing, that contain an order for payment of money either on demand or after a certain time.

Main Differences Between Bill of Exchange and Promissory Note

A promissory note is a written agreement between buying and selling parties in domestic trade. In fact, the function of a promissory note is similar to that of a  bill of exchange. To elaborate further, a promissory note acts as a financial instrument or a written promise by the buying party to pay the selling party in exchange for the goods purchased. A promissory note is a written promise by one party to make a payment of money at a date in the future. Although potentially issued by financial institutions, other organizations or individuals can use promissory notes to confirm the agreed terms of a loan. However, the average investor should be wary of and heavily research any sales pitches for promissory notes as an investment.

Learning the differences between the two main legal documents requiring the repayment of a debt by an individual is important. Whether you are involved in real estate or interested in approaching investors because of your business, understanding the differences between a bill of exchange and a promissory note is crucial. We can also consider promissory notes as debt notes that provide financial assistance for a  company or an individual from a source different from a traditional money lender.

What Is a Promissory Note?

A promissory note’s drawer is in direct contact with the payee, but an approved bill of exchange’s drawer is in contact with the acceptor. Anyone creating a promissory note must understand the interest laws in their state. If the interest laws, also referred to as usury laws, are not followed, the promissory note or debt may be thrown out by the court.

• That implies the drawer who originally demanded the money is not always the one who should be paid.
• A bill of exchange can be transferred from one person to another because it is a negotiable document.
• A bill of exchange is issued by the creditor and orders a debtor to pay a particular amount within a given period of time.

Promissory notes can also be used in business transactions or as a way to formalize a loan from a family member or friend. This type of instrument is essentially a formalized IOU, requiring one person to pay another by a set date. A promissory note is a written promise by the drawer (the borrower) to pay the payee (the person loaning the money).

What is the Difference Between Bill of Exchange and Promissory Note

A bill of exchange is a formal, written IOU that specifies when a certain sum of money must be paid. They are also known as international bills of exchange, and they are similar to contracts in that they commit one side to a certain payment amount. Although a promissory note is not a contract, you will almost certainly be required to sign one before taking out a mortgage. The conditions of a loan agreement, the lender, and the borrower are all identified in promissory agreements. They mention the amount of money borrowed, as well as the frequency and quantity of needed installments A promissory note should also state the interest rate and, if applicable, the collateral.

The bill of exchange is a document that is used in international trade, for the purpose of payment of goods and services, import and export, and for the payment of customs duty and freight. Mrs Q wants to start a garment business but does not have sufficient capital. Mr P is a well-established businessman and agrees to finance Mrs Q’s business idea. Mr P provides a loan of ₹ to Mrs Q at 10% interest to be paid in 50 equal monthly instalments of ₹3300 each. Diffzy is a one-stop platform for finding differences between similar terms, quantities, services, products, technologies, and objects in one place.

State or federal securities entities may regulate more complicated promissory notes. In usage to corporations or high-net-worth individuals, promissory notes have historically been narrowed in the United States. Still, they have become more frequently used, usually in real estate department of labor transactions. A bill of exchange is a document that orders the payment of money from one person to another. The person who draws the bill is called the drawer, the person who owes the money is called the drawee, and the person who is to receive the payment is called the payee.

• Whether you are involved in real estate or interested in approaching investors because of your business, understanding the differences between a bill of exchange and a promissory note is crucial.
• The person who obtains it in good faith must get it free of any flaws and must be able to collect money in his name for the instrument.
• The article explains the salient features of three negotiable instruments, promissory note, a bill of exchange and cheque,  highlighting the differences between them.