In this episode of Money Creation Explained, we are going to
cover “What is an IOU (I Owe You) Promissory Note"?
This method is where a person informally asks for credit
from a business (usually from a small business they know) or
borrows money from family, friends, and others in an
informal way. It is with the intention to pay it back, but
often people start asking for the money back, or are too
embarrassed to ask, or the person does not pay back and it
can create tension in the personal or business relationship.
These relationships are built over many years, establishing
payment and client history.
IOU's has a history dating to the 18th century. An IOU
between two people conducting business may be followed up
with a more formal written agreement. There is no standard
format for an IOU. Criteria such as repayment terms, time of
payment, interest, and payment type may or may not be
included. Nowadays, there are legal templates available for
IOUs.
An example of an IOU in the marketplace is as follows. Say
ABC Construction Company places an order for lumber and
other building materials and does not have enough funds
(credit card, cash, check) to pay for the entire order when
it is delivered. Instead, the company pays a down payment
and issues an IOU (I Owe You) promising to pay for the rest
of the materials within 30 days with or without interest.
Assuming that supplier agrees and has an established
business relationship with ABC Construction Company, an IOU
will be entered into by the parties. Many businesses operate
on Net 30 terms which is also a form of IOU's. They take
possession of the product or utilize the service and have 30
days to pay off the invoice.
IOU Notes is a peer-to-peer credit and loan platform.
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