Abolition of Promissory Notes: Ensure Small, Midsize Firms Do Not Have Trouble with Payments

Editorial

16:42 JST, April 14, 2025

Promissory notes and checks, which have been widely used as a means of corporate payment, are set to be abolished.

The government and financial institutions should strive to prevent their abolition from causing cash flow problems for small and midsize companies, while also working to promote digitalization at those businesses.

The Japanese Bankers Association has decided to end the operation of the electronic clearing house system, which is used for payments with promissory notes and checks, at the end of fiscal 2026. This means that the system of promissory notes, which has continued since the Meiji era (1868-1912), is effectively heading toward complete elimination.

Transactions using promissory notes utilize a system in which large and midsize companies — the ordering party — make payments to small and midsize contractors by setting a due date, such as 120 days or 90 days later.

Under this system, larger companies that issue promissory notes have the advantage of reducing the burden on their cash flow by deferring payments to business partners.

In contrast, contractors have to wait a long time to receive payment in cash. This practice has been seen as problematic, as it puts a strain on these companies’ cash flow.

Nevertheless, promissory notes have been used for many years, likely because contractors have given consideration to maintaining long-term, stable business relationships with their contractors.

In an attempt to improve productivity by simplifying paperwork and reducing costs, the government has taken steps toward discontinuing promissory notes since the latter half of the 2010s.

Last year, the maximum settlement period for promissory notes was shortened from 120 days to 60 days, in principle, in a bid to improve business practices that put pressure on the management of contractors.

However, for the past decade or so, the outstanding balance of promissory notes has remained almost unchanged, hovering around the ¥20 trillion mark.

It is understandable that the government and the financial sector have decided to move toward the abolition of promissory notes by setting a specific deadline to accelerate the digitalization of payments.

It is crucial to promote this initiative in conjunction with the digitalization of accounting for small and midsize companies, and eventually connect these steps to strengthening their competitiveness.

Promissory notes have also often been used in transactions between small and midsize companies themselves.

In the process of companies procuring materials, manufacturing products and selling them, there is a time lag of several months between paying for the purchases and receiving the payment from sales.

The issuance of promissory notes has made up for the gap in their cash flow.

The system for transactions of electronically recorded monetary claims, which can be used as an alternative for promissory notes, was introduced in 2013. For small and midsize companies that find it difficult to change their long-established business practices, it would be effective to utilize this system.

However, it is said that small and midsize firms tend to lack resources and expertise to promote the digitalization of their accounting.

The government and financial institutions should establish a system to provide appropriate advice and other assistance to such companies.

(From The Yomiuri Shimbun, April 14, 2025)