A promissory note is a legal written document by which one party agrees to pay the other party at some future date or on demand. It is also called Pro-note, note payable or just note in accounting terminology. It is commonly used for short term financing requirements to ease out the process of lending loans.
When the bank issues the note, it is called banknote which is payable to bearer on the demand. In businesses, it is quite common that seller sells the goods or services to the customers on credit terms such as over 30 days, 45 days or even 60 days. Though, it is necessary to give credit terms to the customers, but it hampers the financial position and solvency of the seller because he has to pay off its liabilities and has to meet daily routine operations. In this case, the idea of promissory note comes into existence. In credit sale, the debtor issues a promissory note to the seller of the goods or services to pay certain amount at some future specified date or on demand.
Parties in the Promissory Note
There may be several parties in the Pro-note transactions such as:
Issuer – the debtor who writes a pro-note and promise to pay directly to the creditor or the holder of the pro-note.
Receiver – the creditor or holder of the pro-note.
Negotiable instrument
It is often asked whether the Pro-note is a negotiable instrument or not. The answer is that if it is unconditional and transferrable to other parties, it will be negotiable instrument.