What is Negotiable Instrument?
Nexa Consultancy | Startup & Finance Glossary
A Negotiable Instrument is a signed document that promises a sum of payment to a specified person or the assignee. The key feature is that the ownership of the instrument can be transferred from one person to another. Common examples in India are cheques, promissory notes, and bills of exchange.
For Startups: While less common in the age of digital payments, startups may still encounter negotiable instruments, particularly post-dated cheques received from customers or given to suppliers. Proper accounting for these instruments is important. For instance, a post-dated cheque received is not considered cash until the date it can be deposited.
Example: A B2B startup accepts a post-dated cheque from a client as a security deposit for a large contract. This is recorded in the books but is not part of the company's cash balance until it is successfully encashed.