Let's say you have a client that agrees to pay for your product or services within two or three months. A promissory note is a legal and binding document that states your client acknowledges they owe the debt and will pay you within a specific amount of time. It may be a contractor that expects to be paid upon completion of a job they are currently working on. You may have a client that is in the process of opening a new restaurant and has ordered a large sum of menus, but cant pay until they open and begin making sales.

In essence a client that has requested to pay over an extended period of time is asking you for a loan. They are requesting that you carry their account until they can pay you. Asking for a signature on a promissory note is simply complying with their request and asking them to confirm their commitment in writing. If your client is committed to fulfilling their promise they should have no problem signing the promissory note. If they are less than ethical and see this as a way to get something for nothing, they are likely to balk at the request and immediately become defensive. They may argue You don't trust me? Its not a matter of trust. Would a bank approve a loan without a pile of paperwork and a signature? Of course not.

If your client refuses to sign a promissory note, you'll more than likely encounter collection problems down the road. At this point it would be in your best interest to advise your client of your intent to pursue collections efforts in court. A word to the wise, never make empty promises, if you say you're going to pursue the matter in court, do it. First of all, it's illegal to threaten a debtor, furthermore, making empty promises results in your loss of credibility.

There are several versions of a promissory note. One is making equal payments on the principal and the interest over the specified period of time until the note is satisfied. Another version may be one that requires equal payments over a specified number of months with a balloon payment at the end of the term satisfying the remaining principal and interest due. Another version may be one that is required to be paid in one lump sum to include the principal and interest on a specific date or once a specific event occurs, such as the receipt of an expected tax refund for example. Lastly, this version may require the debtor to pay on the interest only for a specified number of months with the balance of the principal and any remaining interest due on a specific date.

You may purchase generic promissory notes in many office supply stores, however I highly advise that you have an attorney draft one for your business that can be revised as needed. In your promissory note, you may specify the date you expect payment in full, along with the balance due. Be certain to include your finance charges when dictating the balance due. A promissory note may be secured with some type of material possession, so that if your client defaults on the note you are still able to collect your money. It is likely your client may refuse to secure the note, however an unsecured note is better than no note at all.

Getting a promissory note not only secures the deal, its considerably easier to successfully sue on a promissory note, than a product or services rendered, (if it comes to that). If your client chooses to dispute your fees on product or services in court, a signed promissory note will make such a dispute difficult to win.

Should your client request that you extend the due date of your promissory note, it would be wise on your part not to do so unless they pay down a considerable amount of the balance due. Paying down the note is an act of good faith. Once your client has paid a significant portion of the note, you may want to consider renegotiating the agreement. A promissory note is simply a legal contract between you and your client, in the event that extending credit over an extended period of time becomes necessary.