If your company has decided to offer credit to a client, the next step is to create a promissory note. A promissory note is an agreement, or a promise, to pay a specified debt. Having a signed promissory note on file will help to ensure that you receive the payment which you are owed. Verbal agreements are legal, but it is often much easier to collect on a debt in court when you have a signed agreement.
What’s in a Promissory Note?
A promissory note includes all of the terms and conditions associated with the debt. This means that you should list the principal amount due, the interest rate, how late fees will be determined, and at what percentage rate the late fee is charged. It will also document the date(s) payment is expected. The promissory note needs to be signed by both parties involved.
If you’re providing credit to a business, consider getting a personal guarantee. This means that even if the business goes under that the person who signed will still pay you what you’re owed.
For more detailed explanation on what exactly a promissory note is and how it works, you can visit Investopedia.
The Easiest Way to Create a Promissory Note
While you could draft a promissory note on your own, there are numerous websites available to help you create one. If you choose to create your promissory note on your own, be sure to include all of the necessary information, including all of your terms and conditions.
The most important thing is to make sure that you and your business are well-protected from a legal standpoint. A clear and comprehensive promissory note will help to ensure that you are paid. No one wants a debt to become delinquent or be turned over to collections, but it still happens. If this occurs, having a promissory note makes it easier for you to get paid. Make sure that you keep a signed copy on file. The company that you use for your first or third party collections should also receive a copy of the signed promissory note. This makes it easier to validate the debt should the debtor request it.
There are also websites available that have the option available for you to fill in all the necessary information to have the promissory note created for you. Generally, you need to provide the amount owed, payment dates, payment installment amounts, the interest rate, what the late fee charge will be set to, the state for which the promissory note has been issued (each state has specific guidelines when it comes to debt collection), if there is a fee for early repayment, and it will include a place for signatures and a notary if you choose to have the document notarized. LegalContract.com and LawDepot.com are two of the many great sites available to help get you started on creating your promissory note. These sites do charge a fee for creating the document. However, by joining the site you will have access to a wide variety of legal documents which may be beneficial to you and your company as well.
Clients ARM can help you create an action plan for your business. We have more than 30 years of Director-level experience covering every aspect of accounts receivable management, customer service, collections, and other first-party services. We can help you keep your focus where it belongs: building your client base and your bottom line. Contact us today at 206-596-3000 for your free quote and to find out how our customized solutions can help your business.