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Learning the differences between the two main legal documents requiring the repayment of a debt by an individual is important. Whether you are involved in real estate or interested in approaching investors because of your business, understanding the differences between a bill of exchange and a promissory note is crucial.

Both the bill of exchange and promissory note are important documents related to debt and repayment, but they operate in distinctly different ways. In this article, you will learn about the difference between a bill of exchange and a promissory note, more information about each, and an example of a bill of exchange and a promissory note.

Difference Between Bill of Exchange and Promissory Note

Both a bill of exchange and promissory note address the concept of an IOU. According to the Global Agriculture Marketing Management, a bill of exchange is involved primarily in foreign trade to ensure the repayment of debt.

Whereas, according to the Official Website of the International Trade Administration, a promissory note is most commonly used in domestic trade matters. For example, it could be used as a private IOU between two parties involved in the sale of a vehicle. A loan from a bank also involves a promissory note. A real estate loan is also a promissory note, although they are subject to more stringent regulations than some other types of IOUs.

Let’s look at each negotiable debt instrument in a little more detail.

Bill of Exchange

In plain English, the bill of exchange involves parties known as the buyer and seller. The buyers may also be referred to as the drawer/maker/payor and the drawee/makee/payee. How the parties are referred to depend on why the bill of exchange is used. The drawer must accept the bill of exchange before it will be paid. As explained by the JPMNT, there are some instances where the drawer may be asked for a discount, or other issues may occur with early acceptance. Issues regarding validity, legality, and liability may also occur.

If the drawer dishonors the bill of exchange, every person involved in the transaction is notified that this occurred. This is important since while it is possible to legally pursue the matter, it is not as simple as pursuing the legal remedies available for domestic trade matters as you would need an attorney who is experienced in foreign trade.

Promissory Note

A promissory note is an IOU for debt. It is created by a lender and a borrower. The borrower promises to repay the lender for a loan that they receive. A promissory note contains several pieces of information: the amount of the loan, the terms of repayment, the date by which it must be repaid, whether the lender will charge a late fee, and the legal remedies the lender may pursue if the borrower defaults on the agreement.


Create a Promissory Note Now

A promissory note must comply with Article 3 of the UCC since it is considered a negotiable instrument. All promissory notes must adhere to the doctrine of good faith. To use a promissory note, the information regarding the loan and its repayment is inserted. The repayment terms must also be included. The name and address for both the borrow and lender are also required. In some states, only the dated signature of the borrow is necessary.

Bill of Exchange Promissory Note
Definition A bill of exchange can act as a security. It is drafted by a drawer on the drawee to pay a specific amount. It may or may include conditions or liabilities. It is used for foreign transactions. A promissory note is a written promise to pay. It is a written IOU between a lender and borrower over a debt. It explains the terms of repayment.
Parties The parties involved include the drawer and drawee. The parties involved include the borrower and lender.
Purpose The purpose is to create an order to pay. The purpose is to create a promise to pay.
Need for acceptance A bill of exchange must be accepted before it is honored. A promissory note does not need to be accepted before it is honored. It is honored because the borrower signed it.
Requires a duty stamp from the government Yes No

Bill of Exchange Example

A bill of exchange includes several important points:

  • The stamp. This is a stamp duty that is levied by the foreign government overseeing the trade.
  • The amount of the sale or transaction.
  • Where the sale took place.
  • The date of the sale.
  • When the payment must be paid and who must pay the amount due.
  • The person or organization required to make the payment.
  • The full address of the drawer.
  • The full address of the drawee.
  • Proof that the bill of exchange was accepted.

Promissory Note Example

Promissory notes include several important components:

  • The name of the lender and borrower.
  • The address of the lender and borrower.
  • The amount of the loan.
  • The interest rate.
  • The state whose law will govern the agreement.
  • The repayment terms (ie, monthly payments).
  • Whether a late payment will be assessed.
  • The address the borrower will use to make their payments.
  • Whether there is a meditation and arbitration agreement.
  • The dated signature of the borrower.

Anyone creating a promissory note must understand the interest laws in their state. If the interest laws, also referred to as usury laws, are not followed, the promissory note or debt may be thrown out by the court. Additionally, the lender may be subject to criminal charges by the state.

LawDistrict can help with your legal document needs. Using our easy-to-follow step-by-step templates, you can create documents and forms in just minutes.

Learning the differences between the two main legal documents requiring the repayment of a debt by an individual is important. Whether you are involved in real estate or interested in approaching investors because of your business, understanding the differences between a bill of exchange and a promissory note is crucial.

Both the bill of exchange and promissory note are important documents related to debt and repayment, but they operate in distinctly different ways. In this article, you will learn about the difference between a bill of exchange and a promissory note, more information about each, and an example of a bill of exchange and a promissory note.

Difference Between Bill of Exchange and Promissory Note

Both a bill of exchange and promissory note address the concept of an IOU. According to the Global Agriculture Marketing Management, a bill of exchange is involved primarily in foreign trade to ensure the repayment of debt.

Whereas, according to the Official Website of the International Trade Administration, a promissory note is most commonly used in domestic trade matters. For example, it could be used as a private IOU between two parties involved in the sale of a vehicle. A loan from a bank also involves a promissory note. A real estate loan is also a promissory note, although they are subject to more stringent regulations than some other types of IOUs.

Let’s look at each negotiable debt instrument in a little more detail.

Bill of Exchange

In plain English, the bill of exchange involves parties known as the buyer and seller. The buyers may also be referred to as the drawer/maker/payor and the drawee/makee/payee. How the parties are referred to depend on why the bill of exchange is used. The drawer must accept the bill of exchange before it will be paid. As explained by the JPMNT, there are some instances where the drawer may be asked for a discount, or other issues may occur with early acceptance. Issues regarding validity, legality, and liability may also occur.

If the drawer dishonors the bill of exchange, every person involved in the transaction is notified that this occurred. This is important since while it is possible to legally pursue the matter, it is not as simple as pursuing the legal remedies available for domestic trade matters as you would need an attorney who is experienced in foreign trade.

Promissory Note

A promissory note is an IOU for debt. It is created by a lender and a borrower. The borrower promises to repay the lender for a loan that they receive. A promissory note contains several pieces of information: the amount of the loan, the terms of repayment, the date by which it must be repaid, whether the lender will charge a late fee, and the legal remedies the lender may pursue if the borrower defaults on the agreement.


Create a Promissory Note Now

A promissory note must comply with Article 3 of the UCC since it is considered a negotiable instrument. All promissory notes must adhere to the doctrine of good faith. To use a promissory note, the information regarding the loan and its repayment is inserted. The repayment terms must also be included. The name and address for both the borrow and lender are also required. In some states, only the dated signature of the borrow is necessary.

Bill of Exchange Promissory Note
Definition A bill of exchange can act as a security. It is drafted by a drawer on the drawee to pay a specific amount. It may or may include conditions or liabilities. It is used for foreign transactions. A promissory note is a written promise to pay. It is a written IOU between a lender and borrower over a debt. It explains the terms of repayment.
Parties The parties involved include the drawer and drawee. The parties involved include the borrower and lender.
Purpose The purpose is to create an order to pay. The purpose is to create a promise to pay.
Need for acceptance A bill of exchange must be accepted before it is honored. A promissory note does not need to be accepted before it is honored. It is honored because the borrower signed it.
Requires a duty stamp from the government Yes No

Bill of Exchange Example

A bill of exchange includes several important points:

  • The stamp. This is a stamp duty that is levied by the foreign government overseeing the trade.
  • The amount of the sale or transaction.
  • Where the sale took place.
  • The date of the sale.
  • When the payment must be paid and who must pay the amount due.
  • The person or organization required to make the payment.
  • The full address of the drawer.
  • The full address of the drawee.
  • Proof that the bill of exchange was accepted.

Promissory Note Example

Promissory notes include several important components:

  • The name of the lender and borrower.
  • The address of the lender and borrower.
  • The amount of the loan.
  • The interest rate.
  • The state whose law will govern the agreement.
  • The repayment terms (ie, monthly payments).
  • Whether a late payment will be assessed.
  • The address the borrower will use to make their payments.
  • Whether there is a meditation and arbitration agreement.
  • The dated signature of the borrower.

Anyone creating a promissory note must understand the interest laws in their state. If the interest laws, also referred to as usury laws, are not followed, the promissory note or debt may be thrown out by the court. Additionally, the lender may be subject to criminal charges by the state.

LawDistrict can help with your legal document needs. Using our easy-to-follow step-by-step templates, you can create documents and forms in just minutes.