InvestorQ : what is negotiable instrument
bijay mahato made post

what is negotiable instrument

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Shreya Karn answered.
1 year ago

A negotiable instrument is a written document that promises a sum of payment to a specified person or the assignee, which is signed by a single party or both the parties. These documents are transferable to the holder or the bearer of the documents to pay a specific amount mentioned in these documents.

There are at least two parties involved in the negotiable instrument, that is payer and payee. Payer of the document has taken some money from the payee and thus prepared a document in which payer promises to pay a particular amount to the payee, on a specific date. The document should necessarily consists the name of the payee, payer, date on which the document is made, the signature of the payer, and date when the amount will be paid to the payee. Promissory notes, Bill of exchange, and Cheques are most popularly used negotiable instruments.

  • A promissory note is a written document that promises to pay the holder a specific amount on a specific date. The payer owes money to the payee, and payer has promised to repay on a specific date. If the payee is in urgent need of money then, this promissory note can be shown to a third party by endorsing the note and payee can receive some cash on using the promissory note. 
  • Bills of Exchange is a bill generate on account of buying good or services. But the buyer has now no money to pay for the same and so makes a written document that legally bind the payer to pay a predetermined sum of money to the seller (second) party. Like promissory note, a bill of exchange is also transferable as a payee can encash money by an endorsement of the endorsor who may be the payee, drawee, accommodation endorser, or holder, or simply the signature alone thereof.
  • A cheque is an unconditional order to the bank to pay the money to the bearer or the account holder mentioned on the document, and signed by the payer.