How is a promissory note used ?

We can define the promissory note as a credit instrument by means of which a beneficiary or holder can collect the amount owed to him by the issuer within a certain period of time.
However, this document has its own accounting peculiarities. Therefore, we are going to explain how it works, what is its validity and how it can be cashed.

What is the function of a promissory note?

The function of the promissory note is the acknowledgment of a debt. The issuer or drawer accepts that he owes money to the beneficiary and that the beneficiary will be able to collect it within a certain period of time. If no date is stated on the document, it is understood to be payable on demand.

Therefore, it is mainly used to obtain financial resources from the creditor. This one can negotiate with him to obtain money. It can even be endorsed as long as it bears the clause “to order”.

The endorsement consists of assigning to a third party, which may be a financial institution, the collection rights of the promissory note to obtain liquidity.

What is the validity of a promissory note?

This document is regulated by the Exchange and Check Law. It establishes that a promissory note has a temporary validity, that is, there is a time limit to cash it.

Concretely, it must be done on the due date indicated in the document itself or in the two following the same. Failure to meet the deadline may result in the loss of the right to claim it judicially in case of non-payment.

However, a promissory note can also be negotiated with a bank. This is called promissory note negotiation and allows the holder to receive the money before maturity in exchange for a small amount of interest and fees.

How to cash the payment of a promissory note

The collection of these documents is regulated, in turn, by the Commercial Code. This Code establishes two ways of receiving the money contemplated in a promissory note:

  • Collect it directly once the maturity date of the promissory note has arrived. To do this, simply present the document at the place and on the date specified therein.
  • Negotiate it with a bank as indicated above.

On the other hand, if the promissory note has been presented for collection in due time and form, but the drawer does not attend to the payment, it can also be claimed. Specifically, a protest must be raised.

This is a notarial act that certifies that the promissory note has not been paid. In this case, the drawer has two days to pay it or to present allegations. If, at the end of this period, it is still not paid, the documentation will be returned to the holder so that he can take the legal action he deems appropriate.

Finally, there is also a period for claiming non-payment of a promissory note: as in the case of a bill of exchange, it is three years.

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