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Financial Dictionary - Promissory note

Promissory note

A promissory note (also known as a credit instrument) is a document by which an issuer agrees to make a payment to a recipient. It also includes the conditions of the debtor to the creditor: the amount of money owed and the term in which to pay the debt. The promissory note is a formal commitment and has legal validity, since the holder (or creditor) may demand its fulfillment.

As we have seen, the subjects of the promissory note are the issuer (who agrees to pay) and beneficiary (who the issuer must pay). It can include a third party: the guarantor who guarantees the payment. And it may contain another feature: the discount of promissory notes, which offers immediate liquidity without waiting for the due date established in the promissory note.

This document is considered one of the safest collection methods, and is a common formula for paying suppliers and financing between companies: many people buy in installments and issue these titles to pay invoices, since they also constitute a reliable collection right that reduces delinquency and advances the money by discounting the promissory note. Furthermore, if it is certified, it means that it is referred to a bank, which backs the guarantee of the title, since the bank that is going to pay it ensures that this document is issued from a solvent account that will make the payment.

Benefits include fast and automated payments; saving time and costs, by not requiring administrative tasks; no fees; and high return compared to other savings and investment products.

Initially, these documents were not covered by law, but over time they have become specialised and standardised. Promissory notes are now regulated by Law 19/1985 of 16 July, on bills of exchange and cheques, and share the following features:


Payment will be limited to what is stipulated by the promissory note, and within the established period. Anything that takes place after the issuance of the document (arrangements, extensions, deals), will not be taken into account unless stipulated in the promissory note.


The beneficiary can be changed, with the new party becoming the new owner of the document and who will have the right to collect it, and the issuer will remain oblivious to these deals between beneficiaries.


The document may circulate freely and change ownership. The last holder may demand payment, even if they do not know the creditor.


Payment for the promissory note may be demanded regardless of the cause that originated it, and it can always be collected unless it is returned or destroyed when the deal is undone. Finally, incorporation. To exercise the associated rights and obligations, this will have to be proven.

Parts of which it consists:

First, the date and place where it is issued; second, the name of the bank and the branch; third, the complete identity of the beneficiary, who may be an individual or a legal entity; fourth, the amount, written in the form of numbers and letters; fifth, the date and place of maturity; sixth, the account number and IBAN code of the issuer; seventh, the word PROMISSORY NOTE [PAGARÉ in Spanish]; eight, the identifier that allows the promissory note to be computerised; and lastly, the signature of the issuer.


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