Definition

Noun A formal, written financial instrument representing an unconditional promise by a debtor (the maker) to pay a specific sum of money to the creditor (the payee) at a definite future date or on demand. It is an asset on the creditor's balance sheet.

Usage

A "note receivable" is recorded as an asset by the entity that holds the right to receive the payment. It is a more formal and legally binding claim than a standard account receivable.

Examples

• The company's balance sheet shows a note receivable from the sale of a division last year.
• When we provided the loan, we obtained a signed note receivable from the borrower.
• The note receivable bears an annual interest rate of 5% and matures in two years.

Advanced Usage

• Classifying Notes Receivable: They are categorized as either short-term (current) or long-term (non-current) assets based on their maturity date.
• Interest-Bearing Note: Most notes receivable include an explicit interest rate, generating interest income for the holder over the life of the note.
• Discounting a Note Receivable: A holder can sell a note receivable to a bank or other financial institution before its maturity date for immediate cash, typically at a discount.

Variants and Related Words

• Promissory Note: The actual document that evidences the debt. A "note receivable" is the asset representing the right embodied in the promissory note.
• Account Receivable: A less formal claim arising from credit sales of goods or services, usually without a written promise.
• Note Payable: The liability counterpart; the obligation from the perspective of the entity that must make the payment.

Synonyms

• Loan Receivable
• Debt Instrument (in a specific context)

Related Financial Terms

• Maturity Date: The specific future date on which the note's principal amount is due.
• Principal: The face value or original amount of money loaned, as stated on the note.
• Maker: The party who signs the note and promises to pay.
• Payee: The party to whom the payment is promised.

Noun

1. your right in a promissory note in which the maker promises to pay a certain amount of money at a certain time