IOU is 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.