What is Bill of Exchange?
A bill of exchange is a document that orders the payment of money from one person to another. The person who draws the bill is called the drawer, the person who owes the money is called the drawee, and the person who is to receive the payment is called the payee.
The bill of exchange is used for the purpose of trade and commerce. The drawer, drawee, and payee are the three parties on a bill of exchange. The drawer is the person who orders the payment, the drawee is the person who owes the money, and the payee is the person who is to receive the payment. A bill of exchange can be transferred from one person to another because it is a negotiable document.
The bill of exchange is a document that is used in international trade, for the purpose of payment of goods and services, import and export, and for the payment of customs duty and freight.
What is Promissory Note?
A legal document known as a promissory note comprises a written promise to pay money to a certain person or organization. The person or entity who writes the promissory note is known as the maker, and the person or entity to whom the money is owed is known as the payee.
Promissory notes are used in situations where one party is borrowing money from another party. The promissory note will contain the following information: the amount of money being borrowed, the interest rate, the repayment schedule, and the consequences of default.
The maker of the promissory note is obligated to repay the loan according to the terms stated in the document. If the maker fails to repay the loan, the payee may take legal action to recover the money.
Promissory notes are used in business transactions, such as when a company is borrowing money from a bank. A promissory note is a legal document, and as such, it must be written in a clear and concise manner. The terms of the promissory note should be carefully negotiated between the maker and the payee.
Difference Between Bill of Exchange and Promissory Note
- A bill of payment is a document that acknowledges a debt and states that the debt will be paid, while a promissory note is a document that creates a debt and states that the debt will be paid.
- A bill of payment does not involve interest, while a promissory note does involve interest.
- A bill of payment is not negotiable, while a promissory note is negotiable.
- A bill of payment is not transferable, while a promissory note is transferable.
- A bill of payment does not have a fixed term, while a promissory note does have a fixed term.
Comparison Between Bill of Exchange and Promissory Note
| Parameters of Comparison | Bill of Exchange | Promissory Note |
| Drawer | The Drawer is the creditor | The Drawee is the debtor |
| Order or Promise | It contains an order to make the payment | It includes a commitment to pay the debt |
| Acceptance | It only becomes valid once the drawee accepts it | It is not necessary for the drawee to accept it |
| Noting | In case of dishonor of bill, noting becomes important | Noting is not necessary in case of dishonor in a promissory note |
| Liability | Only if the drawee doesn’t pay, the drawer become liable | The primary responsibility is with the drawer |