When it comes to international trade, secure payment methods are crucial for both exporters and importers. Among the widely recognized instruments, the promissory note in export finance plays a key role in ensuring trust and legal protection.
What is a Promissory Note in Export?
A promissory note in international trade is a written promise by the buyer (importer) to pay a specific sum of money to the exporter at a future date. It is legally binding under the Indian Contract Act and Negotiable Instruments Act, making it a reliable method of securing export payments.
Unlike a bill of exchange, which requires acceptance, a promissory note for exporters is a direct promise to pay, signed only by the debtor.
Importance of Promissory Note in Export Finance
- Legal Protection – Promissory notes are enforceable in court.
- Financial Security – Exporters gain assurance of payment at a fixed date.
- Negotiability – As a negotiable instrument in export, promissory notes can be transferred to banks for discounting.
- Ease of Drafting – Simple to prepare, unlike more complex instruments such as letters of credit.
Read more about the role of documents in export trade
Use of Promissory Note in Export Business
Exporters often use promissory notes when:
- Dealing with trusted international buyers.
- Offering deferred payment terms.
- Requiring a legally valid acknowledgment of debt.
For instance, an exporter of agro products may issue a promissory note to a foreign buyer allowing 60 days’ credit.
Difference Between Bill of Exchange and Promissory Note in Export
| Feature | Promissory Note | Bill of Exchange |
|---|---|---|
| Parties | Two (debtor & creditor) | Three (drawer, drawee, payee) |
| Liability | Absolute | Conditional on acceptance |
| Signature | Only by maker | By drawer & acceptance by drawee |
📌 Learn more about types of bills used in international trade
Promissory Note vs Letter of Credit in Export Trade
While a letter of credit (LC) is a bank guarantee ensuring payment, a promissory note in foreign trade is a direct promise from the importer. Exporters often prefer LCs for higher-value transactions, while promissory notes are used for smaller, recurring shipments.
Read more: ICC Guide on Trade Finance Instruments
Legal Validity of Promissory Notes in Export
Under the Negotiable Instruments Act, 1881, promissory notes are recognized as legally enforceable documents. Exporters can use them to claim unpaid dues in case of default.
How to Draft a Promissory Note for Export
A valid export promissory note must include:
- Date and place of issue
- Amount payable (in words and figures)
- Name of payee (exporter)
- Date of payment
- Signature of the debtor (importer)
Example:
“On demand, I promise to pay XYZ Exports the sum of USD 50,000 for goods supplied under Invoice No. 123, dated 10th September 2025.”
Conclusion
A promissory note in export finance is not just a payment tool—it is a safeguard for exporters. By understanding its importance, types, and legal validity, businesses can strengthen their international trade transactions.
Explore more: Export finance methods every exporter should know
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