Notes Payable

In accounting, the term notes payable denotes the sum of all promissory notes issued by a company or other entity. Notes payable differ from accounts payable in that they are long-term debt rather than short-term credit.

Example of a note payable:

Manufacturer 1 orders 500 components from manufacturer 2. The order has a value of 50,000 Swiss francs. Because manufacturer 1 is not able to pay for their order from manufacturer 2 until at least part of its products has been manufactured and sold, it issues a promissory note by which it legally binds itself to pay the 50,000 francs owed. It also agrees to pay manufacturer 2 interest on the money owed at the rate of 3% per annum.

See also: Notes receivable