Bill of Exchange vs. Promissory Note: Know the Difference
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.
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
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
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
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
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
Jan 26, 2024
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Comparison Chart
Parties Involved
Three parties: drawer, drawee, payee
Two parties: maker, payee
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Jan 26, 2024
Usage
International trade, commercial transactions
Financial loans, personal or business
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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.
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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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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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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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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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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.
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Jan 08, 2024
Bill of Exchange
A negotiable document used in commercial transactions.
He endorsed the bill of exchange for the transaction.
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Jan 08, 2024
Promissory Note
A binding, written agreement for payment between two parties.
A promissory note was used for the personal loan.
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Jan 08, 2024
Bill of Exchange
A transferable order for payment used in business dealings.
A bill of exchange facilitated the overseas purchase.
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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.
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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
Jan 26, 2024
What defines a Promissory Note?
A written promise by one party to pay a certain sum to another.
Shumaila Saeed
Jan 26, 2024
What is the common use of a Bill of Exchange?
Mainly in international trade and commercial transactions.
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
Jan 26, 2024
Is a Bill of Exchange conditional?
Yes, it carries secondary and conditional liability.
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Jan 26, 2024
Is a Promissory Note easily transferable?
It's transferable but generally less negotiable.
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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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Jan 26, 2024
Who are the parties in a Promissory Note?
The maker (who promises to pay) and the payee.
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Jan 26, 2024
Are Bills of Exchange used in domestic trade?
Yes, but they are more common in international trade.
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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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Jan 26, 2024
What type of liability does a Promissory Note carry?
Primary and unconditional liability.
Shumaila Saeed
Jan 26, 2024
Can a Bill of Exchange be transferred?
Yes, it's highly negotiable and transferable.
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
Jan 26, 2024
What is the risk in a Promissory Note?
Higher risk due to the personal commitment of the maker.
Shumaila Saeed
Jan 26, 2024
Can a Bill of Exchange be endorsed?
Yes, it can be endorsed to another party.
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Jan 26, 2024
Is a Promissory Note subject to stamp duty?
Yes, depending on jurisdiction and amount.
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Jan 26, 2024
How does a Promissory Note ensure payment?
Through its legally binding promise to pay.
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Jan 26, 2024
Can a Promissory Note be used for a car loan?
Yes, it's often used for such personal loans.
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Jan 26, 2024
Can a Promissory Note be collateralized?
Yes, it can be secured against collateral.
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Jan 26, 2024
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About Author
Written by
Shumaila SaeedShumaila 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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