Difference Between Bill of Exchange and Promissory Note
To pay for credit sales a buyer may make a written promise in form of a promissory note or a bill of exchange. Below is a compilation of the major points of difference between bill of exchange and promissory note.
Definition (Bill of Exchange) – It is a financial instrument in writing containing an unconditional order signed by the maker, directing another person to pay a specific sum of money. It is paid to the bearer of the instrument (or) to the order of a particular person (or) to a particular person.
Definition (Promissory Note) – It is a financial instrument, in which one party promises in writing to pay a pre-determined sum of money to the other party subject to agreed terms. It can either be payable on demand or at a specific time. It may be paid to the bearer of the instrument (or) to the authorized party (or) to the order of the authorized party.
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Difference (Table Format)
|Bill of Exchange||Promissory Note|
|1. A bill of exchange is an order to pay.||1. A promissory note is a promise to pay.|
|2. The creditor is the drawer in this case.||2. The debtor is the drawer in this case.|
|3. There are 3 parties involved in a bill of exchange; Drawer, Drawee, and the Payee.||3. There are 2 parties involved in a promissory note; Promisor and the Payee.|
|4. Acceptance is mandatory by the drawee.||4. Acceptance is not mandatory by the drawee.|
|5. Liability of the drawer is only recognized when the acceptor fails to pay.||5. Promisor has the primary liability to make a payment.|
|6. Noting of a bill of exchange is advisable in case of non-payment.||6. Noting of a promissory note is compulsory in case of non-payment.|
|7. Stamping is necessary for a bill of exchange except for “bills payable on demand”.||7. Stamping is necessary for promissory notes without any exceptions.|
|8. A single copy is prepared, except in case of foreign bills. (3 copies are made)||8. One copy is prepared in all cases.|