Difference Between Bill of Exchange and Promissory Note

A negotiable instrument is a commercial document in writing, that contain an order for payment of money either on demand or after a certain time. These are of three types, namely, bills of exchange, promissory note and cheques. There are instances when the bill of exchange is juxtaposed with a promissory note. The fundamental difference between Bill of Exchange and Promissory Note is that the former carries an order to pay money while the latter contains a promise to pay money.

Acceptance is one of the major element, which distinguishes the two commercial instruments, i.e. bill of exchange need to be accepted, so as to become effective. On the other hand, a promissory note does not require any kind of acceptance. So, when one is working with these two, he/she should be known about the meaning and features.

Content: Bill of Exchange Vs Promissory Note

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

Basis for Comparison	Bill of Exchange	Promissory Note
Meaning	Bill of Exchange is an instrument in writing showing the indebtedness of a buyer towards the seller of goods.	A promissory note is a written promise made by the debtor to pay a certain sum of money to the creditor at a future specified date.
Defined in	Section 5 of Negotiable Instrument Act, 1881.	Section 4 of Negotiable Instrument Act, 1881.
Parties	Three parties, i.e. drawer, drawee and payee.	Two parties, i.e. drawer and payee.
Drawn by	Creditor	Debtor
Liability of Maker	Secondary and conditional	Primary and absolute
Can maker and payee be the same person?	Yes	No
Copies	Bill can be drawn in copies.	Promissory Note cannot be drawn in copies.
Dishonor	Notice is necessary to be given to all the parties involved.	Notice is not necessary to be given to the maker.

Definition of Bill of Exchange

A Bill of Exchange is a written document which is duly stamped and signed by the drawer carrying an unconditional order which directs (not commands) a person to pay a specific amount to a particular person or to the order of the particular person or the holder of the instrument. The following conditions need to be fulfilled:

• The bill should be properly dated.
• It must contain an order, i.e. the drawer of the instrument directs the drawee to pay a certain sum to the payee.
• Must be signed by the maker of the bill.
• The drawee must accept Bill.
• Order to pay money only as well as the amount should be definite.
• Delivering the bill to the payee is a must.

The creditor makes Bill of Exchange. It is used in business to settle the debt between the parties.

Definition of Promissory Note

A promissory note is a negotiable instrument, containing a written unconditional promise, duly stamped and signed by the drawer, to pay a specified sum of money to a particular person or the order of the particular person. It is made by the debtor to borrow money from the creditor. The features of a promissory note are as under:

• The note must be in writing carrying written promise to pay money to the creditor.
• Signature of the promisor i.e. drawer of the note must be there.
• The date on which the note is payable should be fixed.
• Both the promisor and promisee needs to be certain.
• The sum of money must be definite.
• The country’s legal currency should be used to discharge the debt.

Promissory Note does not include a currency note or a bank note.

Conclusion

Along with the differences between the bill of exchange and promissory note, there are a few similarities like both the two instruments are not payable to the bearer on demand as per RBI Act, 1934. Moreover, treatment of Bill of Exchange or Promissory Note is as under-Bills Receivable: The payee of the bill and note. and Bills Payable: The drawer of the note and drawee of the bill.