Promissary Notes

What is a Promissory Note?

Promissory Notes have been a popular form of raising finance in the world of trade and commerce for some three hundred years. Just like bank notes they provide a promise by one party to pay another (‘promise to pay the bearer’ - in the case of bank notes). Promissory Notes were originally used as ways of traders, in particular, shippers, who accepted the Promissory Notes from the party they were supplying and they then sold these Notes to a bank to obtain cash to buy the cargo. Just like a bank note they are a tradable instrument.

Simple Documentation

Promissory Notes are one of the most simple and straightforward finance offerings in the market to process. There are no special rules for signature, it is just the same as with a lease, loan or other financial instrument with less complications. There are just two documents that require signature and execution for a Promissory Note transaction.

Promissory Note - who signs

The Promissory Note can be signed by anyone in an organisation providing they are able to prove they are authorised to sign such a document (payment plan arrangement) on behalf of the company. A Director of the company is an authorised person by implication of his title.

Letter of Certification - who signs

The Letter of Certification states that the person signing the Promissory Note is authorised to do so on behalf of the Company. This document should be signed by a Director of the company and it cannot be the same signatory as the Promissory Note. Other acceptable forms of certification could be an "extract of the minutes of a Board Meeting" or a ‘Power of Attorney’.

Benefits of Promissory Notes:

  • Simple and straight forward documentation enabling minimal negotiation and review
  • Cost-effective as no premium charged by funders on the grounds that there is no asset security
  • No disadvantages in comparison any traditional form of finance
  • Easier and quicker to enforce than leases
  • Allows the inclusion of services in any proportion
  • Less or no breakage costs if customer wishes to upgrade equipment financed
  • No requirement of the alteration of cash-sale procedures, documentation, or invoicing
  • Simple end of finance term provisions -nothing more to pay by way of secondary or continuation rentals
  • SEC regulations in the US make ‘sale of receivables’ difficult and funders are increasingly wary of taking performance risk on suppliers who are obliged to provide on-going services as part of the deal funded by them.
  • Leasing is restrictive from both a service inclusion position as well as the transfer of title.
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