Description:
The two principal instruments of commercial credit, apart from book accounts, are the promissory note and the bill of exchange. A promissory note is a written promise to pay a certain sum of money to the payee on demand or at the end of a definite time. The payee, by indorsing it, may make it payable to a third person, and he in turn may transfer it to a fourth person, and so on. Each indorser makes himself responsible in case the maker of the note fails to pay it when due. In most lines of business the interval between buying and selling stocks of goods necessitates borrowing from the banks. Though the practice of giving promissory notes to cover purchases of goods has declined in this country, it is still common in certain lines of business. Such paper when indorsed by the payee can readily be exchanged for bank credit by being discounted at the. bank. It is believed that under the Federal Reserve Act, which provides for the rediscount of commercial paper held by the banks, the promissory note as a medium of payment will regain some of its former popularity. #doc
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