Bills of Exchange vs Promissory Note Top 7 Differences

On a promissory note, the credit is properly documented and thus, can be used as evidence while seeking a judgment in court if any conflict arises between the debtor and the creditor. There is a certainty of time as the creditor is aware of the time when he would receive the amount, and similarly, the debtor is also aware of the date by which he has to pay the due amount. The list of negotiable instruments mentioned above is not a closed chapter. With the continuous change in the commercial world, new kinds of securities may also get recognition as negotiable instruments.

A time draft gives the importer a short amount of time to pay the exporter for the goods after receiving them. It can specify that payment is due on demand or at a specified future date. The most important feature of Promissory Note is, once it is drawn by the debtor, it need not be accepted by the creditor. The promotion can be signed by the authorized agent of the maker, but the agent must expressly state on whose behalf he is signing, otherwise, he himself may be held liable as a maker.

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Despite being financial instruments with a written promise for payment, these have different features and purposes, which every commerce student must understand. Commercial documents in the business exchange world can be vital because they act as the legal form binding parties while negotiating over such credit. Bills of exchange and promissory notes are legal and two unique documents; one has to provide certain services while the other deals in an exchange with both money.

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A promissory note cannot be made payable to the maker himself, while in a bill of exchange to the drawer and payee or drawee and payee may be the same person. The other formalities regarding number, place, date, consideration, etc. though usually found given in the promissory notes but are not essential in law. The date of the instrument is not material unless the amount is made payable at a certain time after the date. It is usually drawn by the creditors (drawer) upon their debtors (drawee) to ensure their payment on the due date. The bill of exchange must be accepted by the drawee, as it is just a draft without such acceptance.

The holder of the post bill would be paid on acceptance after a specified number of days and was similar to muddati hundis already existing in India. To formalise the use and standardise the characteristics of instruments like the cheque, the bill of exchange and promissory note, the Negotiable Instruments Act (NI Act) was enacted in 1881. 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. These are of three types, namely, bills of exchange, promissory note difference between bills of exchange and promissory note and cheques.

The last decade has seen an electronic revolution in the banking sphere in India, but negotiable instruments are still used widely. Their existence depends on people overcoming the problems faced due to digital banking but someday in the future, they may become obsolete. 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 transactions and loan purposes.

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.

1. The drawer of promissory note stands in immediate relation with the payee, while the drawer of an accepted bill of exchange stands in relation with the acceptor.
2. Although bills of exchange are similar to the promissory note, many differences exist between them.
3. This Section also provides that no one apart from the Reserve Bank of India or the Central Government can make or issue a promissory note articulated to be payable or demanded or after a definite time.
4. Promissory notes are retained by the payee or seller and, once payment has been completed, must be canceled and returned to the issuer or buyer.

Section 143 and 143A of Negotiable Instruments Act, 1881

A bill of exchange asks for payment from the receiver, regardless of where the cash came from. These financial instruments allow copies and do not have any specified limit. When a drawer dishonors a promissory note, no notice is served to this individual.

The number of parties

Therefore, handing over an instrument to someone for safe custody does not amount to negotiation. Bills of exchange generally do not pay interest, making them, in essence, post-dated checks. They may accrue interest if not paid by a certain date; however, in this case, the rate must be specified on the instrument.

And, the seller can also get the payment immediately, even after the extension of credit, by getting the bills discounted with a bank or by endorsing it to a third party. In cases, where the date of acceptance is not dated, the instruments are presumed to be accepted within a reasonable time after its issue and before its maturity. Otherwise, where the date of acceptance is present, such date will be taken as prima facie evidence of the date on which it was made. That implies the drawer who originally demanded the money is not always the one who should be paid. An international bill of exchange is a document that permits one party to demand payment from another. A promissory note need not be accepted by a drawee to be legal and binding, while the latter must be accepted by the drawee.