Promissory note: meaning, example, how to write one and how to track payments
A promissory note is a signed written promise by one party (the maker or borrower) to pay a fixed amount of money to another party (the payee or lender) on demand or by a set date, with or without interest. Businesses use it when a customer cannot pay an invoice on time and the debt is turned into a dated payment plan, when they lend money, or when they sell on longer credit; families use it for personal loans. Below: the types of promissory notes, the fields every note should contain with a filled example, how to write one in seven steps, how a note differs from an IOU, a loan agreement and an invoice, a six-month payment schedule with interest, the journal entry for a note receivable, and how to track every payment on the customer's account — including in Account Ledger by Ofisx.
Short answer
- Promissory note meaning: a signed, written, unconditional promise to pay a stated sum to a named person or business, on demand or on a fixed date or schedule.
- Parties: the maker (borrower) signs and promises to pay; the payee (lender or seller) receives the money. A co-signer or guarantor may also sign.
- What it must say: amount, parties, date, interest rate (or "no interest"), when and how payments are made, what happens on late payment or default, and the maker's signature.
- Promissory note vs IOU: an IOU only admits a debt; a promissory note also states how and when it will be repaid, which makes it much easier to enforce.
- Does it need to be notarized? Usually not for an ordinary note — the signature of the maker is what counts — but notarizing or adding witnesses makes the signature harder to dispute, and notes tied to real estate often must be notarized for recording.
- For a business: a customer's overdue invoice can be converted into a note — your books move the amount from accounts receivable to notes receivable, and each payment is recorded against the customer's balance.
Types of promissory notes
| Type | How it is repaid | Typical use |
|---|---|---|
| Demand note | Whole balance due whenever the payee asks (usually with a short notice period) | Family loans, short business advances |
| Single-payment (lump-sum) note | Principal plus interest paid once on a maturity date | Bridge loans, a customer who expects a large payment on a known date |
| Installment note | Equal monthly or weekly payments until paid off | Converting an overdue customer account into a payment plan; car or equipment sales |
| Secured note | Like the above, but backed by collateral the payee can claim on default | Equipment, vehicles, inventory; mortgages (with a deed of trust or mortgage) |
| Unsecured note | No collateral — only the maker's promise (and any guarantor's) | Small personal loans, most customer payment plans |
| Student loan master promissory note (MPN) | Federal student loan terms the student signs once | College financial aid — a different, standardized form |
In the US, notes that meet the definition of a negotiable instrument are governed by Article 3 of the Uniform Commercial Code as adopted by each state — that is why a well-drafted note is "unconditional" and states a fixed amount. A negotiable note can be transferred to someone else by endorsement, just like a check.
What to include in a promissory note (with a filled example)
Ridgeline Landscaping owes Northside Building Supply $6,000.00 on invoices that are more than 60 days past due. Instead of sending the account to collections, both sides agree to convert the balance into a six-month installment note:
| Field | What to write | Example |
|---|---|---|
| Title and date | "Promissory Note", place and date of signing | Promissory Note — Columbus, Ohio — November 15, 2026 |
| Principal amount | In figures and in words | $6,000.00 (six thousand dollars) |
| Maker (borrower) | Full legal name and address; for a company, its legal name and the signer's title | Ridgeline Landscaping LLC, by Dana Ruiz, Managing Member |
| Payee (lender) | Full legal name and address | Northside Building Supply Inc. |
| Reason (optional but useful) | What the debt comes from | Balance of invoices INV-0988, INV-1004 and INV-1017 |
| Interest | Annual rate and how it is calculated, or "no interest" | 6% per year on the unpaid principal, calculated monthly |
| Payment terms | Amount, frequency, first and last due dates, where to pay | 6 monthly payments of $1,017.57, on the 15th, from December 15, 2026 to May 15, 2027 (last payment $1,017.58) |
| Prepayment | Whether early payment is allowed without penalty | May be prepaid in whole or in part at any time without penalty |
| Late fee | Grace period and fee, within your state's limits | $25 if a payment is more than 10 days late |
| Default and acceleration | What counts as default and that the whole balance becomes due | If any payment is 30 days late, the entire unpaid balance becomes due immediately |
| Collateral (if secured) | Description of the collateral and a reference to the security agreement | None — unsecured |
| Guarantor (optional) | Name and signature of a person who guarantees payment | Dana Ruiz, personally |
| Governing law | State whose law applies | State of Ohio |
| Signatures | Maker (and guarantor); date; notary or witnesses if used | Signed by Dana Ruiz for the LLC and personally as guarantor |
The payee keeps the signed original; the maker gets a copy. When the note is paid off, the payee marks it "Paid in full", signs and dates it and returns it (or a release letter) to the maker. Keep the invoices the note refers to with your copy.
How to write a promissory note in 7 steps
- Agree the amount. For a customer debt, reconcile first: send a statement of account and get the customer to confirm the balance before it goes into the note.
- Choose the type. Installment for most customer payment plans; single payment if the money is expected on one date; demand note for informal family loans.
- Set interest within the law. Each state caps interest rates (usury laws), with different rules for business and consumer loans. For loans between relatives, very low or zero interest can have federal tax consequences above certain amounts — ask a tax adviser.
- Write the schedule. Exact amounts and dates, not "about $1,000 a month". Attach a payment schedule if there is interest (see the table below).
- Add default terms. Grace period, late fee, acceleration clause, and who pays reasonable collection costs if the note goes unpaid.
- Sign. The maker signs (for a company, an authorized officer with their title). Add a personal guarantee if the company is small or new. Notarize or use witnesses when the amount is large or you expect a dispute.
- Record it and track it. Enter the note on the customer's account, set a reminder for every due date, and write each payment down the day it arrives.
Promissory note vs IOU vs loan agreement vs invoice
| Promissory note | IOU | Loan agreement | Invoice | |
|---|---|---|---|---|
| What it is | Signed promise to pay a fixed sum on set terms | Informal admission that a debt exists | Full contract with obligations on both sides | Seller's bill for goods or services delivered |
| Who signs | The maker (borrower) | The debtor, often informally | Both parties | No signature needed |
| Repayment terms | Yes — amount, dates, interest | Usually not | Yes, in detail (covenants, collateral, reporting) | Payment terms such as Net 30 |
| Transferable | Yes, if negotiable | No | Only by assignment under the contract | Receivable can be sold (factoring) |
| Typical size | Small to large | Small, informal | Large, bank or investor loans | Any |
A promissory note does not replace the invoice: the invoices still show what was sold. The note replaces the original payment terms with a new schedule. A bill of exchange is related but different — it is an order by one party telling another to pay, while a note is a promise by the maker to pay.
Promissory note payment schedule example (with interest)
Ridgeline's $6,000.00 note at 6% a year, six equal monthly payments. Monthly interest = unpaid principal × 0.5%; the rest of each payment reduces the principal:
| Due date | Payment | Interest | Principal | Principal left |
|---|---|---|---|---|
| Dec 15, 2026 | $1,017.57 | $30.00 | $987.57 | $5,012.43 |
| Jan 15, 2027 | $1,017.57 | $25.06 | $992.51 | $4,019.92 |
| Feb 15, 2027 | $1,017.57 | $20.10 | $997.47 | $3,022.45 |
| Mar 15, 2027 | $1,017.57 | $15.11 | $1,002.46 | $2,019.99 |
| Apr 15, 2027 | $1,017.57 | $10.10 | $1,007.47 | $1,012.52 |
| May 15, 2027 | $1,017.58 | $5.06 | $1,012.52 | $0.00 |
Total paid $6,105.43, of which $105.43 is interest. In Excel or Google Sheets the payment is =PMT(6%/12, 6, -6000) → 1,017.57. If you charge no interest, the schedule is simply six payments of $1,000.00 — simpler to track and often enough to get an overdue customer paying again.
Journal entry for a note receivable
When a customer's overdue account is converted into a note, the payee's books change like this (using the example above):
| Event | Debit | Credit |
|---|---|---|
| Nov 15, 2026 — account converted into a note | Notes Receivable — Ridgeline $6,000.00 | Accounts Receivable — Ridgeline $6,000.00 |
| Dec 15, 2026 — first payment received | Cash $1,017.57 | Notes Receivable $987.57; Interest Revenue $30.00 |
| If the maker defaults and you sue or collect | Accounts Receivable — Ridgeline (unpaid principal + accrued interest) | Notes Receivable; Interest Revenue |
| If it is finally uncollectible | Bad Debt Expense (or Allowance) | Accounts Receivable / Notes Receivable |
The maker records the mirror image: Accounts Payable → Notes Payable when signing, then Notes Payable and Interest Expense against Cash with each payment. Notes due within a year are current assets (or liabilities). If the customer never pays, see bad debt for the write-off.
What to do if the borrower stops paying
- Day 1–10 after a missed payment: send a friendly reminder with the amount, the due date and the note's date (see payment reminder templates).
- After the grace period: charge the late fee only if the note allows it, and send a written notice of default that quotes the late-payment clause.
- Acceleration: if the note has an acceleration clause, a formal demand letter can declare the whole unpaid balance due.
- Small claims or a lawyer: small amounts can often go to small-claims court; above your state's limit, a collection attorney or agency. Bring the signed original, the payment history and every reminder you sent.
- Do not wait years: every state limits how long you have to sue on a written note (statute of limitations), and the periods differ — check yours early.
- Accepting partial payments: recording a partial payment keeps the debt alive; be careful with a check marked "payment in full" for less than the balance — ask a lawyer before depositing it.
Ways to track promissory notes and customer balances compared
| Option | Best for | Notes and due dates | Customer balance | Platforms | US App Store ratings (Oct 21, 2026) |
|---|---|---|---|---|---|
| Account Ledger by Ofisx | Small businesses that turn customer debts into payment plans and need to see who has paid | Check and promissory note portfolio with due dates; due-date alerts; installment plans | Running balance per customer and per supplier; partial payments; PDF statement | iPhone (US App Store); Android on Google Play in Turkey only | New in the US store — no ratings yet |
| Intuit QuickBooks | Businesses with full bookkeeping in QuickBooks | Notes receivable kept as an account in the chart of accounts; no note document | Customer balances and A/R aging | iPhone, Android, web | 273,010 ratings, 4.7 |
| Zoho Books | Small businesses invoicing in Zoho | Notes receivable via accounts and journals | Customer balances; statements | iPhone, Android, web | 5,264 ratings, 4.8 |
| Wave | Very small businesses that already invoice in Wave | Through accounts and transactions — check Wave's current options | Customer balances from Wave invoices | iPhone, Android, web | 6,665 ratings, 4.4 |
| Spreadsheet | One or two notes | A schedule built with PMT and a column for the date each payment arrived | Manual | Any | — |
The options in detail
Account Ledger by Ofisx
Account Ledger keeps a ledger for each customer and supplier and a portfolio of checks and promissory notes with their due dates, so upcoming and overdue payments are flagged. Each payment you receive is recorded on the customer's account and the balance updates itself; you can send the balance by WhatsApp or share the ledger as a PDF statement.
It does not draft or print the legal note, calculate amortized interest or post journal entries — sign the note on paper (or with your lawyer's template) and use the app to track what is owed and paid.
Intuit QuickBooks
QuickBooks records the note as an asset account with journal entries; reminders for each installment are up to you or your accountant.
Zoho Books
Zoho Books handles the accounting side of a note inside full accounting.
Wave
Wave combines invoicing and bookkeeping for very small businesses.
Spreadsheet
A sheet is fine for a single family loan; with several customers on payment plans, missed due dates and partial payments are easy to lose.
Promissory note rules that prevent disputes
- Confirm the balance first — A note built on a disputed amount invites a second dispute — reconcile with a statement before signing.
- Exact dates and amounts — "$1,017.57 on the 15th of each month" is enforceable; "about $1,000 a month" is an argument.
- Get a guarantee from small companies — An LLC with no assets can walk away; a personal guarantee from the owner changes that.
- Keep the signed original — You may need the original to enforce or transfer the note; store it with the invoices it covers.
- Record every payment the same day — So the balance, reminders and any court claim are based on the right figure.
- Return the note when paid — Mark it "Paid in full", sign and date it — it protects the maker and closes your file.
Limits — what Account Ledger does not do
- Account Ledger does not draft, print or e-sign promissory notes, calculate amortization schedules, post journal entries or give legal advice.
- It does not send automatic email reminder sequences or take card payments; you send the WhatsApp reminder from the customer's card.
- In the US the app is on the App Store for iPhone; the Android version is on Google Play in Turkey only for now.
- It is a paid subscription after the free trial; the App Store shows current plans and prices.
Frequently asked questions
What is a promissory note?
A promissory note is a signed written promise by a maker (borrower) to pay a fixed amount of money to a payee (lender) on demand or on a set date or schedule, with or without interest. It is used for loans, payment plans for overdue customer accounts and sales on long credit.
What is an example of a promissory note?
Ridgeline Landscaping LLC owes Northside Building Supply $6,000.00 on overdue invoices. On November 15, 2026 it signs a note to repay the amount at 6% a year in six monthly payments of $1,017.57 from December 15, 2026 to May 15, 2027, with a $25 late fee after 10 days and the whole balance due if a payment is 30 days late.
How do I write a promissory note?
State the principal amount in figures and words, the names and addresses of maker and payee, the interest rate or "no interest", the payment amounts and dates, prepayment, late-fee and default terms, any collateral or guarantor and the governing state, then have the maker sign and date it. Keep the signed original.
Does a promissory note need to be notarized?
In most cases an ordinary promissory note is valid with the maker's signature alone. Notarizing or adding witnesses makes the signature harder to dispute, and notes connected to real estate usually must be notarized so the mortgage or deed of trust can be recorded. Check your state's rules for large or secured notes.
Is a promissory note legally binding?
Yes, a properly written and signed promissory note is an enforceable promise to pay. It can still be challenged if it charges interest above the state's usury limit, was signed under fraud or duress, or is missing essential terms such as the amount.
What is the difference between a promissory note and an IOU?
An IOU only acknowledges that a debt exists. A promissory note also states the amount, the repayment dates, interest and default terms and is signed by the borrower, which makes it a stronger document to enforce.
What happens if a promissory note is not paid?
The payee sends reminders and a written notice of default, may declare the whole balance due if the note has an acceleration clause, and can then go to small-claims court, a collection attorney or an agency. If the note is secured, the payee can claim the collateral under the security agreement.
How do I keep track of promissory note payments?
Keep a payment schedule with each due date and record every payment the day it arrives against the customer's balance, with a reminder before each due date. Accounting apps such as QuickBooks and Zoho Books keep notes receivable in the books; Account Ledger by Ofisx keeps a check and promissory note portfolio with due-date alerts and each customer's running balance on iPhone, with a free trial and then a subscription.