Bills of Exchange vs Promissory Note

Bills of Exchange vs. Promissory Note Differences

Negotiable instrumentsNegotiable InstrumentsA negotiable instrument refers to the transferrable and signed written document whereby the payer guarantees or promises to pay a certain sum on a specific future date or as on-demand to the payee or bearer. It includes bills of exchange, delivery order, promissory note, customer receipt, etc.read more are important parts of doing regular business deals. These instruments carry a demand or a promise to pay a certain amount of money within a stipulated period of time.

There are three kinds of negotiable instruments – bills of exchangeBills Of ExchangeBills of exchange are negotiable instruments that contain an order to pay a certain amount to a particular person within a stipulated period of time. The bill of exchange is issued by the creditor to the debtor when the debtor owes money for goods or services.read more, promissory notes, and cheques.

  • A Bill of exchange is an instrument ordering the debtor to pay a certain amount within a stipulated period of time. A Bill of exchange needs to be accepted in order to call it valid or applicable. And the Bill of exchange is issued by the creditor.
  • A promissory note, on the other hand, is a promise to pay a certain amount of money within a stipulated period of time. And the promissory note is issued by the debtor.

The basic difference between the Bill of exchange and promissory note is that the former need to be accepted before the payment is made, but the latter doesn’t need to be accepted.

In this article, we will discuss head to head differences between the Bill of exchange and promissory note.

Bills-of-Exchange-vs-Promissory-Note

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Bills of Exchange vs. Promissory Note Infographics

There are many differences between the bills of exchange vs. promissory notes. Here are the most important ones described below –

Bills of Exchange vs Promissory Note info

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Bills of Exchange vs. Promissory Note – Key differences

As you already know, there are many differences between the bills of exchange and promissory notes. Here are the key differences between them which stand out –

  • The Bill of exchange is a negotiable instrument that is issued when an order needs to be given to the debtor to pay the due amount to the creditor within a stipulated period of time. The promissory note, on the other hand, is a written contract between the drawer and the drawee, where the drawer promises to pay off a certain amount within a stipulated time.
  • The parties involved in the Bill of exchange are drawer, drawee, and payee. In the promissory note, the parties involved are drawer and payee/drawee.
  • In the case of a bill of exchange, the debtor needs to accept the Bill in order to call it valid. In the case of the promissory note, there’s no need for acceptance from the drawee.
  • If the Bill of exchange is dishonored, a notice is issued to all parties involved. In the case of the promissory note, no notice is issued to the “maker” of the promissory note for the dishonor.
  • In the case of a bill of exchange, no asset is kept as security. In some cases, in the case of promissory notes, an asset can be kept for security against a loan.

Bills of Exchange vs. Promissory Note (Comparison Table)

The basis for Comparison between bills of exchange vs. promissory  noteBills of ExchangePromissory Notes
1.    MeaningBills of exchange are negotiable instruments that demand money from debtors within a stipulated period of time.Promissory notes are also negotiable instruments which promise to pay a certain amount within a particular period of time.
2.    What it’s all about?Ordering to pay the money that is due.They are promising to pay the money that is due.
3.    Issued byCreditors.Debtors.
4.    AcceptanceBills of exchange need to be accepted by the debtors to be called as valid.There’s no such norm.
5.    Parties involvedThere are three parties involved – drawer, drawee, and payee.Here, two parties are involved – drawer and payee.
6.    Application of copiesBills of exchange can be drawn in copies.Promissory notes can’t be drawn in copies.
7.    In the case of dishonorWhen the Bill is dishonored, a notice is given to all parties that are involved.When a promissory note is dishonored, notice is not issued to the maker (the debtor).

Conclusion

Bills of exchange and promissory notes are as important as cheques in business. But rarely do we talk about these concepts, which are vital for business transactionsBusiness TransactionsA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements.read more and loan purposes. Bills of exchange are one of the most significant negotiable instruments that are issued when the debtor purchases goods on credit. Through bills of exchange, the creditor sends an order to the debtor that the latter should pay the amount within the stipulated time.

The promissory note is of the same nature, but it’s issued by the debtor on which he promises to pay off the required amount within a particular time. Understanding these concepts will help you understand the business from a practical perspective, and you would be able to implement these in your own business/job.

This has been a guide to the top differences between Bills of exchange vs. promissory notes. Here we also discuss the Bills of exchange and promissory notes differences with examples, infographics, and comparison table. You may also have a look at the following articles for gaining further knowledge in Fixed Income

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Comments

  1. Tridev singh says

    Very well description. It’s value for time.

    • Dheeraj Vaidya says

      Thanks for your kind words!

  2. Vijay says

    Good