Promissory note loan: description, conditions, terms, repayment features and reviews

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

With the development of the banking system, new payment systems began to appear. One of them is a bill of exchange. This security is used not only as an investment instrument that generates income, but also as a means of payment. This article will focus on the second function of the bill.

Essence

Any organization inevitably faces the need to obtain borrowed funds for temporary use. With the development of credit relations, banks began to offer new types of loans. Promissory notes are not a new product on the market, but they are not sufficiently mastered by the participants. The transaction is based on a standard bank loan. But the money is not credited to a bank account, but is provided in the form of a Central Bank.

The company applies to get a bill of exchange loan. The procedure for processing a transaction is standard: the organization is asked for constituent documents and financial reports. After a positive decision is made, a bill of exchange loan agreement is concluded. It almost completely copies the content of the standard contract, except for one paragraph. If athe purpose of attracting a conventional loan is to pay for raw materials, equipment, pay off wage arrears, then in the case of a bill of exchange loan, the purpose of the transaction will be the acquisition of a bank debt security. A guarantee agreement, as an additional guarantee, may not be concluded. After signing the papers for the organization, a loan account is opened.

Process

During the use of the loan, the bank transfers funds to the borrower's account. This amount is immediately debited for the purchase of a bill, if the agreement states that the bank receives the right to write off funds without acceptance. Or the payer himself must provide a payment confirmation confirming the transfer of money. That is, the account is opened only to comply with the requirements of the Central Bank. It will not be possible to use the funds for other than their intended purpose. The transactions are made by bank employees. On the bill, the borrower is indicated as the first holder.

Several securities can be issued within the framework of one agreement. The total amount of all promissory notes must be equal to the amount of the loan. Exceptions are cases where the contract provides for the collection of additional commissions.

Use

Usually, a bill is purchased for settlements with suppliers. It is enough for the borrower to put an endorsement on the security paper in order to repay the debt to his counterparty. The bill has a new owner. The securities are put into circulation. But this should not worry the borrower. Despite the specifics of the transaction, the promissory note loan is repaid in cash. Deadline for holdingcalculations specified in the contract. Usually it does not exceed 6 months.

The term of payment of the bill may exceed the term of repayment of the loan by a maximum of two weeks. This circumstance must be taken into account in the calculations. If the bill is presented for payment ahead of schedule, then it will be repaid not at face value, but at a discount. This will also affect the price at which mutual settlements between the borrower and the lender will be carried out.

Example 1

The borrower received a promissory note with a par value of 1 million rubles. The amount of his liabilities to the bank is 4.7 million rubles. The maturity of the debt is March 15, 2016. The final date of mutual settlements between the borrower and the creditor is scheduled for September 28, 2015. At the time of contacting the bank, the creditor learns that the institution redeemed the bill on September 28, 2015 with a discount of 11%. The bearer received not 1 million rubles, but 890 thousand rubles. The borrower's obligations are reduced by the same amount: 4.7 - 0.89=3.81 million rubles.

Similar calculations are carried out throughout the chain of owners. The closer the settlement date, the larger amounts will be taken into account.

Conditions

Promissory notes carry three types of risks: borrowing, interest and the threat of liquidity reduction. To reduce them, financial institutions impose requirements on customers:

• provide collateral (collateral) in the form of government bonds (other liquid securities), inventory, real estate, equipment;
• conduct activities at the time of signing the agreement for more than a year;
• have regular cash flow onaccounts.

When these minimum requirements are met, bank promissory notes are issued for up to one year at 6-10%.

Benefits

• Promissory notes are cheaper than conventional loans. Although the procedures for processing transactions are identical, the rate on such loans usually does not exceed 10%.
• A loan allows payments to be made even if there are outstanding claims on the account.
• The very fact of debt repayment is made out by an endorsement on the document. This significantly reduces the paperwork.

Flaws

• Decrease in creditable amount due to redemption of promissory note at discount.
• The need to agree with the supplier on the possibility of repaying the debt with a promissory note and the terms of the transaction, i.e. with what margin will he accept the Central Bank for offset.

Accounting for promissory notes

Debt securities are accepted for accounting by the supplier as part of financial investments (account 58-2). Depending on the period for which the bill was issued, the borrower in the balance sheet reflects the posting of the Central Bank on DT accounts 66-2 (short-term) or 67-2 (long-term bank loans). Amounts used to pay debts are written off to DT 91-2 “Other expenses”.

Example 2

CJSC received a short-term promissory note loan from the bank for 500 thousand rubles. for a period of six months at 5.5% per annum. Interest is paid in equal installments along with the repayment of the main part of the debt: 5000.055=13.75 thousand rubles. This amount is reflected in the accountingwiring DT91-2 KT 66-2.

Taxation

In art. 167 of the Tax Code states that when transferring a promissory note to pay off the supplier's debt, VAT must be calculated only if this security is paid or transferred by the taxpayer by endorsement. Receipt of a promissory note by a third party is considered a sale, since the buyer's obligation to the organization terminates without reservation.

Example 3

The buyer of LLC paid for goods with CJSC with a promissory note purchased at a branch of Sberbank. The seller shipped goods in the amount of 18 thousand rubles. (VAT 10%). For the same amount, the buyer handed over the promissory note. From a legal point of view, LLC fulfilled its obligations to pay for the goods. CJSC cannot record this security in accounts receivable.

Sberbank is not a debtor of the seller. In this case, the accounting bill of exchange credit should be reflected on account 58 in the amount of the cost of its acquisition, that is, the cost of shipped products. In the BU, the seller makes the following entries:

DT62 KT90-1 "Revenue" - 18 thousand rubles. - reflected the sale of goods to LLC.

DT90-3 "VAT" KT68-3 - 1,636 thousand rubles. - VAT charged.

DT58-2 "Debt securities" KT76-3 "Calculations on other income" - 18 thousand rubles. - bill accepted for accounting.

DT76-3 KT 62 - 18 thousand rubles. - bill paid for shipped products.

Features

Promissory note repayment provides that VAT for purchased goods is calculated based on the balancethe value of the Central Bank. The balance sheet also takes into account the cost of purchasing a bill. The actual amount of expenses may not match the nominal value. If it is more than the balance, then the VAT deduction is carried out on the basis of the seller's invoices.

Movements of bills

There are two main schemes for the movement of bills. Let's consider them in more detail.

After the buyer and supplier agree on the amount of the transaction, the terms of payment, the counterparties open accounts in the same bank located in the same city and conclude a tripartite agreement. The buyer purchases a short-term promissory note for the amount of the transaction, places it on deposit and blocks it. Upon completion of the transaction, the deposit is removed, and the funds are transferred to the supplier's account. If in the course of the transaction violations were revealed, then after unblocking the bill remains with the buyer. The security cannot be withdrawn from the pledge without the consent of both parties. So the buyer is insured against debiting funds ahead of schedule, and the supplier is insured against non-payment of the transaction after its completion.

Let's change the conditions of the previous scheme. Counterparties open accounts in branches of the same bank in different cities. The buyer draws up long-term bills of exchange for the amount of the transaction, notifies the supplier in writing and gives permission to transfer part of the securities received to the depo account. The supplier's bank contacts the buyer's credit institution to confirm the blocking of bills. Upon completion of the transaction, the security will be unlocked and transferred to the supplier's account.