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Bill of Exchange vs. Promissory Note: Know the Difference

Shumaila Saeed
By Shumaila Saeed || Published on January 26, 2024
Bill of Exchange is a written, unconditional order directing a party to pay a specific sum of money to another, while a Promissory Note is a written promise by one party to pay a certain sum to another party or the bearer.
Bill of Exchange vs. Promissory Note

Key Differences

A Bill of Exchange involves three parties (the drawer, the drawee, and the payee) and is used primarily in international trade. A Promissory Note is a two-party instrument (maker and payee) used for various financial transactions, including loans.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024
The Bill of Exchange is an order to pay, and the liability is secondary and conditional. In contrast, a Promissory Note is a promise to pay, with primary and unconditional liability.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024
Bills of Exchange are generally more negotiable and can be transferred easily. Promissory Notes, while transferable, are typically less negotiable and more restrictive in transfer.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024
Bills of Exchange are often used in international trade and commercial transactions. Promissory Notes are common in financial loans, both personal and business.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024
The Bill of Exchange offers more security and assurance of payment, as it involves multiple parties. A Promissory Note, being a personal commitment, carries slightly higher risk.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024
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Comparison Chart

Parties Involved

Three parties: drawer, drawee, payee
Two parties: maker, payee
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Shumaila Saeed
Jan 26, 2024

Nature

Order to pay
Promise to pay
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Shumaila Saeed
Jan 26, 2024

Liability

Secondary and conditional
Primary and unconditional
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Shumaila Saeed
Jan 26, 2024

Usage

International trade, commercial transactions
Financial loans, personal or business
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Shumaila Saeed
Jan 26, 2024

Negotiability

Highly negotiable
Less negotiable
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Shumaila Saeed
Jan 26, 2024
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Bill of Exchange and Promissory Note Definitions

Bill of Exchange

An instrument directing a third party to pay a specified sum.
The supplier used a bill of exchange to ensure payment from the buyer.
Shumaila Saeed
Shumaila Saeed
Jan 08, 2024

Promissory Note

A document outlining the terms of a loan to be repaid.
The student loan was governed by a promissory note.
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Shumaila Saeed
Jan 08, 2024

Bill of Exchange

A written order from one party to another to pay a specific amount.
The exporter issued a bill of exchange to the importer for payment.
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Shumaila Saeed
Jan 08, 2024

Promissory Note

An unconditional promise by one party to pay another.
He secured the loan with a promissory note.
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Shumaila Saeed
Jan 08, 2024

Bill of Exchange

A financial document used in international trade for payments.
They settled the trade with a bill of exchange.
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Shumaila Saeed
Jan 08, 2024
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Promissory Note

A financial instrument signifying a personal pledge to pay a debt.
The businessman issued a promissory note for the loan.
Shumaila Saeed
Shumaila Saeed
Jan 08, 2024

Bill of Exchange

A negotiable document used in commercial transactions.
He endorsed the bill of exchange for the transaction.
Shumaila Saeed
Shumaila Saeed
Jan 08, 2024

Promissory Note

A binding, written agreement for payment between two parties.
A promissory note was used for the personal loan.
Shumaila Saeed
Shumaila Saeed
Jan 08, 2024

Bill of Exchange

A transferable order for payment used in business dealings.
A bill of exchange facilitated the overseas purchase.
Shumaila Saeed
Shumaila Saeed
Jan 08, 2024

Promissory Note

A written promise to pay a specific sum of money to someone.
She signed a promissory note for her car loan.
Shumaila Saeed
Shumaila Saeed
Jan 08, 2024

Repeatedly Asked Queries

What is a Bill of Exchange?

It's a written order directing a party to pay a specified sum to another.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

What defines a Promissory Note?

A written promise by one party to pay a certain sum to another.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

What is the common use of a Bill of Exchange?

Mainly in international trade and commercial transactions.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

How many parties are involved in a Bill of Exchange?

Three: the drawer, the drawee, and the payee.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

Is a Bill of Exchange conditional?

Yes, it carries secondary and conditional liability.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

Is a Promissory Note easily transferable?

It's transferable but generally less negotiable.
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Shumaila Saeed
Jan 26, 2024

What happens if a Bill of Exchange is not honored?

The holder can take legal action against the parties involved.
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Shumaila Saeed
Jan 26, 2024

Who are the parties in a Promissory Note?

The maker (who promises to pay) and the payee.
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Shumaila Saeed
Jan 26, 2024

Are Bills of Exchange used in domestic trade?

Yes, but they are more common in international trade.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

What’s needed to validate a Bill of Exchange?

It must be accepted by the drawee to be valid.
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Shumaila Saeed
Jan 26, 2024

What type of liability does a Promissory Note carry?

Primary and unconditional liability.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

Can a Bill of Exchange be transferred?

Yes, it's highly negotiable and transferable.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

Which is more secure: Bill of Exchange or Promissory Note?

Bill of Exchange, due to involvement of multiple parties.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

What is the risk in a Promissory Note?

Higher risk due to the personal commitment of the maker.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

Can a Bill of Exchange be endorsed?

Yes, it can be endorsed to another party.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

Is a Promissory Note subject to stamp duty?

Yes, depending on jurisdiction and amount.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

Where is a Promissory Note commonly used?

In personal and business loans.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

How does a Promissory Note ensure payment?

Through its legally binding promise to pay.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

Can a Promissory Note be used for a car loan?

Yes, it's often used for such personal loans.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

Can a Promissory Note be collateralized?

Yes, it can be secured against collateral.
Shumaila Saeed
Shumaila Saeed
Jan 26, 2024

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About Author
Shumaila Saeed
Written by
Shumaila Saeed
Shumaila Saeed, an expert content creator with 6 years of experience, specializes in distilling complex topics into easily digestible comparisons, shining a light on the nuances that both inform and educate readers with clarity and accuracy.

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