IOUis an acronym that stands for “I owe you”.
It refers to an informal document that acknowledges a debt one party owes to another.
The debt usually involves a monetary value but can also be related to other goods, such as physical products or properties.
Owing to the informal quality of IOU, they tend to carry a certain degree of uncertainty and, unlike bonds and promissory notes, are not considered a legal negotiable instrument.
This means that the party in debt has no legal obligation to actually pay the debt just because they wrote down and signed an IOU.
IOUs can be as simple as a piece of paper or even a verbal deal between members of the same family.
In some cases, businesses may also use IOUs as a method for informally recording how much they owe to another company or to their employees, for example.
In essence, IOUs are nothing more than casual notes that people create in order to remind them they need to pay a debt in a future date.
Sometimes they include the parties’ names (or companies’ names), the value, the signature, and the date they were created.
However, as informal documents, IOUs do not include any information about the consequences of not paying or the specific dates that it should be paid.
FAQs
An IOU is a legal document that can be introduced in a court of law—though whether or not it is binding is open to dispute. Some authorities feel an IOU isn't binding at all; it's merely the acknowledgement that a debt exists. Others feel it is binding, though whether it can actually be enforced is a different story.
What should I reply to "I owe you"? ›
If someone tells you "I owe you a lot," you can respond by saying, "It was my pleasure to help. I'm glad I could be there for you." You can also say something like, "No, you don't owe me anything, I'm just glad I could help out."
What does IOU stand for? ›
abbreviation for I owe you (= a written promise to pay back money owed): I'll give you an IOU for the loan.
What is an example of an IOU note? ›
I OWE YOU (IOU) FORM
I, the undersigned [BORROWER NAME] (the “Borrower”), hereby confirm and acknowledge to [LENDER NAME] (the “Lender”) that I am indebted to said Lender in the amount of $[AMOUNT] (the “Debt”) as of the date set forth below.
Is a handwritten IOU legal? ›
Is a handwritten promissory note legal? A handwritten or “informal” promissory note can be legally valid. What matters most is that the document clearly outlines the loan terms, including the loan amount, repayment schedule and the parties involved.
What are the disadvantages of IOU? ›
However, there are also some drawbacks associated with IOU loans. One major disadvantage is the lack of legal protection for both parties involved. Since there's no written contract detailing the terms and conditions of the loan agreement, disputes may arise over issues such as repayment deadlines or interest rates.
What can I say instead of I owe you? ›
owe
- be beholden.
- be bound.
- be contracted.
- be in arrears.
- be in debt.
- be indebted.
- be into one for.
- be obligated.
to need to pay or give something to someone because they have lent money to you: owe sb $5/$500, etc.
How do you respond to someone you owe money? ›
Talk to them one by one
If you have the time and the courage, you can even visit them personally. Talk to them and explain carefully and calmly why you have not been able to make your payments on time. Make sure that you are very honest with them, because after all, they trusted you enough to lend you money.
How does IOU work? ›
An IOU is an informal note that promises to pay a debt. It is so-called as it is a phonetic match for “I Owe You” and it also abbreviates the first letters of each word. IOUs can be used for many purposes, although they are not usually used by banks or issuing large amounts of formal debt.
An “I Owe You,” commonly known as an IOU, is a simple agreement made between two parties who need to establish the terms of a loan. Typically, these sorts of loan agreements are used between parties who are familiar with each other, e.g., family, friends, or business partners.
Is IOU considered cash? ›
Excluded from cash are: Post-dated cheques from customers and IOUs (informal letters of a promise to pay a debt), which are classified as receivables.
How to write IOU? ›
How To Write An IOU Letter
- Step 1: Use a Formal Header.
- Step 2: Address the Recipient.
- Step 3: Clearly State the Purpose.
- Step 4: Provide Details.
- Step 5: Express Commitment.
- Step 6: Sign the Letter.
- Step 7: Keep a Copy.
- Step 8: Deliver the Letter.
An IOU is a written promise that you will pay back some money that you have borrowed. IOU is an abbreviation for 'I owe you'.
Can IOU be used in court? ›
As documentary evidence of a debt, a signed IOU is as good as any promissory note. Only the bells and whistles of a promissory note are missing. Any defense that could be used against a signed IOU can be used against a promissory note.
How well does a promissory note hold up in court? ›
Promissory notes are legally binding whether the note is secured by collateral or based only on the promise of repayment. If you lend money to someone who defaults on a promissory note and does not repay, you can legally possess any property that individual promised as collateral.
Is an IOU binding? ›
While an IOU is a legally binding agreement, it is generally not as formal as other legal documents. However, it is still wise to seek legal advice before creating or signing an IOU.
How long can an IOU last? ›
Can an IOU expire? Yes, unless specifically stated an IOU can be relied upon for a period of six (6) years from the date on which payment ought to have been made.
