What is a promissory note?

A promissory note is a document by which a person or company agrees with another to pay an amount of money in a specified time. These promissory notes are credit titles, since the person who receives them has the right to collect and demand payment from the person who issued it.

The concept of promissory note refers to the unconditional promise of payment by the issuer or drawer (person who agrees to pay), the beneficiary or holder, (person to whom it must be paid) within agreed conditions and that are reflected in the document.

We must bear in mind that the promissory notes are a promise, and not a means of payment. This means that promises must always be kept, but it does not always end up. Therefore, the promissory note has some risks that you may encounter when collecting it.

For the person who issues it, the promissory notes are a good resource for financing since it allows them to obtain extra time to comply with the obligations slopes. However, for those who receive it, it is not always good news. On the one hand, the procedures to collect and the management expenses are borne by the beneficiary. On the other hand, nobody assures you that you will get your money. This is why bank promissory notes offer better guarantees for the person who receives it.

Parts of a promissory note

For the promissory note to be effective it is essential that the word promissory note is reflected in the document. In addition, it is necessary that you include information about the conditions and the different parties involved such as:

  • Date and place of issue
  • Use by date
  • Name of issuer and beneficiary
  • Account number and IBAN of the emirsor
  • Payment promise
  • Signature of the issuer of the promissory note

 

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