A promissory note is an unconditional promise in writing given by the buyer (or creditor) to the seller (or debtor) to pay the amount of money specified therein to the seller or to the order of seller or to bearer. Whereas, A Bill of Exchange is something that reduces our credit risk, Let’s understand this concept better with the help of an example; Omkar being the seller sold goods worth Rs 10,000 to Ishaan being the buyer on credit. In the given case, Omkar has sold goods to Ishaan believing that on some future date he will make payment. Now, we can analyze that Omkar is a little skeptical regarding the certainty of receipt and time of such payment. In order to set an exact date of payment and to make his transaction legally valid, Omkar will draw a document in writing. Such a document is called Bills of Exchange. The major points of difference between Bills of Exchange and Promissory Note have been tabulated below.
Difference between Bills of Exchange and Promissory Note
| Basis of Distinction | Bills of Exchange | Promissory Note |
|---|---|---|
| Number of Parties | Parties involved: a. Drawer b. Drawee c. Payee | Parties involved: a. Maker b. Payee |
| Drawn by | Creditor or Drawer or Purchaser | A debtor (Maker) |
| Order / Promise | It is an order to pay the debt. | It is a promise to pay the debt. |
| Requirement of Acceptance | It attains validity only when it is accepted by the drawee. | It does not require any acceptance. |
| Liability of drawer | The drawer’s liability is of secondary nature i.e. it will arise only if the acceptor fails to pay. | Drawer (maker) Liability is of primary nature. |
| Drawer and Payee | The drawer and payee can be the same person. | Drawer (maker) and payee cannot be the same person |
| Noting in case of Dishonour | Compulsory | Not compulsory |
| Number of Copies | If there are foreign bills, three copies are required and in other cases, only one copy is required. | A single copy is prepared; whether it is a foreign bill or any other type of bill. |
| Stamping | The stamp is necessary for all types of bills. However, if the bill is payable on demand, then a stamp is not required. | The stamp is required for promissory notes. |
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