A promissory note is written by a party as a promise that the other party will receive payment from them. Sometimes a company may acquire the services of a vendor but will only agree to pay after they are satisfied with their introductory service. In this case, a promissory note needs to be written to the vendor assuring him that he will receive his payment after a certain period.
Other times, a promissory note may also be written if a company is unable to pay the vendor their dues on time. This could be due to the company’s financial constraints or any other technical reason. In this case, the vendor may demand a promissory note for delayed payment. The company must write a letter to the vendor enlisting all details regarding the payment and the date by which they can clear all the dues. The party that must pay the money is called the debtor and the one who will receive the money i.e., the vendor, in this case, is called the receiver.
Important points to consider while writing the promissory note
- Specify the reason for late payment. If the reason is financial constraint, it can be mentioned in the letter without going into unnecessary details about the company’s finances. Simply mention that the payment will be made as soon as the funds are available.
- Some companies have a policy to pay the vendor after a certain probation period. They might make payments after they are satisfied with the vendors services. If this is the case, it should be mentioned clearly in the letter too.
- Write the letter in a professional tone. Mention any necessary details clearly including total sum of money or any dates. If the company is going through a financial crisis, make sure you would be able to clear the dues by the proposed date. It is very unprofessional to not stick to the agreements made earlier. First make sure that enough company funds will be available to pay the vendor back by that specified date, and then write the promissory note.
- The letter can be addressed directly to the vendor or to any representative of the vendors company, if there is any. If any prior agreements have been made with this representative, make sure to mention those in the letter too. You can also attach a copy of previous communication letters here.
- If any interest rate is applicable on the payment, that should be mentioned in the letter too. This means that the company will have to pay a certain percentage on the agreed amount as a compensation for delayed payment. This needs to be discussed before hand with both parties and it can be set as per company policies.
Following is a sample promissory note to the vendor.
Mr. Raymond Applebee
Raymond service providers
Ms. Angela Simpson
6th September 20XX
Subject: Promissory note
Dear Mr. Raymond,
I am writing to inform you that the Cloudrevel company has been using your net metering service from 25th August 20XX. As per our company policy, we make payments to the vendor after a test period of one month. As discussed previously, our company had agreed to pay you $1000 for the installation of the meters and grid with our solar panels. A sum of $500 is pending on the company’s behalf. Our company will pay the remaining money to you at the end of September 20XX. This is done to ensure that the meters and grid you installed at our building are compatible with our electricity consumption and overall company needs.
The meters installed seem to be working fine so far. We can assure you that full payment will be made after the probation period, I.e., by 31st September, when we are satisfied with your service. A copy of our agreement and the company’s terms and conditions are attached with this letter.
Please feel free to contact me at [EMAIL] if you have any further questions. Thank you.