A bill of exchange is also a negotiable tool, which is a written note legally bound, and duly stamped and signed by its drawer. It instructs payment of a certain sum of money to the holder of this instrument on demand, or within a specific time frame. Requiring to be accepted by a debtor to be valid, these are usually the payment for goods and services. It has these features mentioned below.
It must be appropriately dated.
Contains an order of payment.
Signature of the drawer/maker is mandatory.
Bill must be accepted by a drawee.
Order of payment and its amount should be defined.
It must be delivered to the relevant payee.
It involves the following three parties:
Drawer: An issuer of this instrument who receives the payment.
Drawee: An individual who has to pay the relevant amount.
Payee: This is an individual who receives payment, and in most circumstances, is the same as the drawer.
While promissory notes, bill of exchange, and cheque have some similarities among themselves, these are distinctly different from each other. Despite being financial instruments with a written promise for payment, these have different features and purposes, which every commerce student must understand.
Every distinguishing feature about a bill of exchange vs promissory note is listed below in detail.
While this table above describes fundamental differences between promissory notes and bills of exchange, students should also learn their differences to that of a cheque – another financial instrument.
Similar to the difference between promissory note and bill of exchange, there are numerous crucial topics in the standard 10 + 2 curricula for commerce students. Subsequently, Vedantu offers detailed study materials on all these topics written by expert teachers to help students in their studies. Additionally, students can also attend live classes offered by Vedantu to clear any doubt they might have.
1. What is a Promissory Note?
It is a written promise issued by a drawer that guarantees the payment of a certain sum of money to its holder on demand, or by a predetermined date. A creditor might not accept these notes after being drawn by a debtor. Settlement against a promissory should be made in the currency of the relevant nation.
2. What is the Bill of Exchange?
A written agreement between two parties, buyers and sellers, it is a document where the drawee is directed to pay a certain sum of money by the predetermined date, or on demand. This negotiable tool is valid only when the concerned debtor accepts it and is generally used to settle outstanding debts between different parties involved in a transaction.
3. How are Promissory Notes Different From Bills of Exchange?
A promissory note need not be accepted by a drawee to be legal and binding, while the latter must be accepted by the drawee. Consequently, notices are not served on dishonouring of a promissory note unlike in the case of a bill of exchange.