Getting Your Arizona Business Paid

Making Sure Your Corporation Is Legally Protected

Using promissory notes and security agreements to turn your receivables into cash

Cash is king.  A business will not survive if it is not able to turn its account receivables or loans into cash.  There are certain actions that businesses should take to increase the chances of collecting on a loan or receivable.  One of these actions is to use a well-written promissory note.

A promissory note is a written contract in which one party makes an unconditional promise to pay another party a specified amount of money.  A promissory note should be used in any transaction that results in another party owing your business money.  A party’s refusal to agree to a promissory note should be cause for concern and usually is a sign of future collection problems.  Some basics that should be included in the note are the amount of the loan, the date by which it should be paid back, and the interest rate.

To further increase the chances of being paid, a promissory note can be secured with some form of collateral.  Under a security agreement, if a party fails to repay the loan, ownership of the collateral is transferred to your business to mitigate the damages of the failed payment.  This transfer process can be complicated, so security agreements should be carefully drafted to ensure that they have the desired effect.

You should use an experienced Arizona attorney specializing in business law to identify the needs of your business and advise you as to whether a promissory note or security agreement is appropriate in your situation.  An attorney can also create a promissory note and/or security agreement that has the essential elements and is enforceable in Arizona.