If the ECB can do it, so can you! You too can issue promissory notes.
The deal reached by the government on the Anglo promissory notes has been the major news story of the past couple of days, and some of you must be thinking: what is the deal with promissory notes? Are they like IOU’s? Should I be using them?

You should consider promissory notes when you have invoices that have been overdue, and overdue, and overdue. What can you do? If you decide to turn it over to a collection agency or solicitor you may wind up paying more in fees; but if you wait too long you run the risk of it becoming uncollectable.

Billy O’Dwyer, of Chapman Cooper, argues for the left field solution: the promissory note. We love left-field solutions here at Bullet, so we were intrigued.

What are promissory notes?

“A promissory note is a little known and lesser used device. Essentially, it is a signed document containing a written promise to pay a stated sum to a specified person or the bearer at a specified date.”


Bullethq If Noonan Can Do It, So Can You Promissory Notes For SMEs


“A collection manager I worked with would personally evaluate the status of outstanding invoices once they hit 60 days.  They had a diverse mix of clients and each one operated according to different factors. At the 60 day stage he tried to figure out if a client is just a slow payer or a serious problem.

Once he flagged an overdue account as risky, he aimed to convert the invoice to a promissory note of his own design.  He would try to get the director to personally commit to a note that spells out: the amount owed (including late payment interest charges); the date that payment will be made; a description of what the money is owed for; and a statement of what steps he would take if the note is not paid on time.  He keeps a stack of blank promissory notes in his files for easy use.

Converting the invoices to promissory notes takes bad debts and turns them into current obligations, which look much better in your accounts.  It also eliminates room for confusion. Instead of a whole mess of outstanding invoices, there’s just one outstanding note; which has already been approved in advance by the person who signed it. Additionally, thanks to a clause I asked him to add, the debtor agrees to pay any legal or collection fees if the promissory note is defaulted on.

If the customer is willing to commit their personal resources to guarantee payment, and many are, then the collection officer gets s a good indication of the customer’s confidence about their company’s future. But when they refuse to sign the note he views it as a sure sign of trouble.  That account will be with his solicitors immediately, because it’s the only other way to protect the outstanding balance.”

So, what are promissory notes? A great way to ensure that you eventually see those magic words.

Promissory Notes For SMEs Bullethq

Billy O’Dwyer is the principle consultant at Chapman Cooper credit management consultants who provide practical credit management services to the Irish SME market. Chapman Cooper helps their clients to improve their cash flow and profitability by analysing the companies entire order to cash process and linking it to client care.

If you’d like some advice on sources of finance, check out a previous post here. If you’d like to read more posts in the future, please subscribe to our blog to get free email updates.


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