Difference between promissory note and bill of exchange

The promissory note and bill of exchange are written promises between two parties verifying the completion of a financial transaction. Bills of exchange are more typically utilized in overseas business than promissory notes are in domestic trade.

What is a Bill of Exchange?

What is a Promissory Note?

Parties Involved in promissory note and bill of exchange

Features of promissory note and bill of exchange

Bill of Exchange:

• Typically involves three parties - the drawer, payee, and drawee.
• The drawer creates the bill and owes the payment to the payee.
• The payee is the party entitled to receive the specified sum on the agreed future date.
• The drawee is responsible for making the payment on behalf of the drawer when the bill matures.
• Contains essential details such as the payment amount, maturity date, payee's name, drawee's name, and drawer's signature.
• Bills of exchange are negotiable and can be transferred to other parties as a form of payment.
• Facilitates trade and credit arrangements, enabling businesses to extend credit to partners, suppliers, or customers.

Promissory Note:

• Involves two primary parties - the maker and the payee.
• The maker issues the Promissory Note and is obligated to repay the specified amount of money.
• The payee is the recipient of the promised repayment.
• Includes the principal amount, interest rate (if applicable), maturity date, and any agreed-upon terms and conditions.
• Requires the maker's signature as a commitment to fulfill the debt according to the note's terms.
• Commonly used in loans, debts, and credit arrangements, it serves as a formal record of financial commitment.
• Serves as a legally binding document that outlines the repayment agreement between the maker and payee.

Types of Negotiable Instruments

Promissory Notes:

Bills of Exchange:

Cheques:

Bearer Instruments:

Order Instruments:

Bank Drafts:

Certificate of Deposit (CD):

Promissory Note and Bill of Exchange Differences