A Bill of Exchange as Security in Serbia: Benefits, Risks and Common Mistakes

The company delivers the goods to the customer with a payment term of 60 days. As additional security, the buyer signs a blank promissory note and authorisation to complete the blank promissory note. When the bill is due, the obligation has not been paid, and the debtor’s accounts are already blocked.

The creditor has a promissory note, but there is no automatic payment.

This situation shows the basic characteristic of the promissory note as a security instrument. It can improve the legal and procedural position of the creditor, but it cannot create money in the debtor’s account, prevent his bankruptcy or compensate for an unclear contract and a missed check of a business partner.

The practical value of a promissory note depends on who signed it, in what capacity, how the promissory authorization was drawn up, whether the necessary registration was carried out, what claim is secured and whether the debtor has funds or assets from which the creditor can be satisfied.

What is a promissory note?

A promissory note is a formal security that contains an obligation to pay a certain amount of money. Its legal effects arise not only from the intention of the signatories, but also from whether the conditions prescribed by promissory law have been met.

The law distinguishes between drawn and proprietary promissory notes.

With a drawn promissory note, the issuer orders another person to pay a certain amount. With his own promissory note, the issuer himself undertakes to pay the specified amount. In domestic business relations, one’s own blank promissory note is often used as a security instrument.

The bill can be used for:

• sale of goods with deferred payment
• contract on the provision of services
• lease of business premises
• loan agreements and credit relations
• distribution and other long-term business contracts
• guaranteeing the return of advances
• other relationships in which there is a risk of non-fulfillment of a financial obligation

When given as security, the promissory note provides the creditor with an additional collection mechanism if the debtor defaults on the underlying contractual obligation.

However, it does not replace the contract. The basis, amount, maturity and terms of payment must still be clearly regulated by the underlying legal work.

A Blank Promissory Note and the Authorisation to Complete It Are Not the Same

A blank promissory note is a signed promissory note which, at the time of issuance, does not contain all the data required for its final realization. Most often, the amount of the bill, the due date or information about the creditor are not entered in advance.

The missing elements are subsequently entered in accordance with the agreement of the parties.

Bill of exchange authorization is a document by which the issuer determines under what conditions, up to what amount and for which claim the creditor can complete a blank bill of exchange of exchange.

The written authorisation to complete the blank promissory note is not a mandatory component of the completed promissory note itself. Nevertheless, it has great practical and evidentiary significance because it shows the limits of the creditor’s right to subsequent filling.

A well-drafted power of attorney should address:

• which contract and which obligations the promissory note provides
• when the creditor acquires the right to complete the bill
• what is the maximum amount that can be entered
• whether the bill amount includes principal, interest and costs
• how the maturity date is determined
• whether and under what conditions the promissory note can be transferred
• what happens to the promissory note after the termination of the secured claim

Formulations according to which the creditor can complete the promissory note “up to the amount of all debts” often leave open the question of which debts are covered, how the secondary claims are calculated and whether the promissory note refers only to one contract or to the entire business cooperation.

The contract, promissory note and promissory authorization must therefore be harmonized in terms of content.

What Are the Advantages of a Promissory Note as Security?

Formalising the Obligation

Issuing a promissory note shows that the debtor does not just make an informal promise to pay, but accepts an additional monetary obligation governed by the rules of promissory law.

It may increase discipline in the business relationship, but it does not change the financial ability of the debtor.

A More Favourable Position During Collection

When the promissory note and its registration meet the prescribed conditions, the creditor can submit it to the bank for collection from the promissory note debtor’s account. In the case of a blank bill of exchange of exchange, it is also necessary that it be filled out in accordance with the given bill of exchange authorization.

A promissory note can have the status of an authentic document in enforcement proceedings. This may enable the creditor to demand the adoption of a decision on execution without first conducting a full litigation to determine the claim.

The debtor can use legal remedies permitted by law and raise objections. The further course of the procedure depends on the type of promissory note, its content, maturity, promissory note clauses and the nature of the specific objection.

A more favorable procedural position is therefore not the same as immediate or secure payment.

Additional Security Through an Aval

Aval is a promissory guarantee by which a certain person undertakes the obligation to pay the promissory note if the person for whom the aval was given fails to do so.

The legal obligation of the guarantor may be significant, but its practical value is related to its solvency. An aval of a person without sufficient assets may remain legally valid but provide little real benefit in collection.

Registration of the bill of exchange

For promissory notes of legal entities and entrepreneurs, the rules of the Register of Promissory Notes and Authorizations maintained by the National Bank of Serbia apply.

The valid Decision on the detailed conditions, content and manner of keeping the Register of bills of exchange and authorizations was published in the “Official Gazette of the RS”, number 95/2025. At the same time, the rules of compulsory collection from the client’s account were changed in order to include electronic bills of exchange. (nbs.rs)

Registration contributes to the record of the promissory note, but does not constitute confirmation that the underlying claim is undisputed or that the debtor has sufficient funds to pay.

What a promissory note cannot provide

A promissory note does not guarantee that the debt will be collected.

She cannot:

• create funds that the debtor does not have
• prevent account blocking
• prevent the opening of bankruptcy proceedings
• remove the existence of other creditors
• replace the credit check of the business partner
• correct a vaguely drafted contract
• automatically prove every part of the disputed claim
• to provide the same level of protection as a bank guarantee, pledge or mortgage in any business

A creditor may have a formal promissory note and an active collection order, but still remain unsatisfied if there are no funds in the debtor’s accounts.

Therefore, it is necessary to distinguish the legal possibility of collection from the actual collectability of claims.

The most important risks for the creditor

• Incorrect filling

An incorrect amount, date, creditor information or other element can make collection difficult and cause a dispute.

A special risk arises when interest, contractual penalties, legal fees or other claims that are not clearly covered by the bill of exchange are included in the bill of exchange.

• Unauthorized signatory

With a legal entity, you should check who is authorized to represent it and whether there are any restrictions or rules for joint representation.

The fact that a certain person participated in the negotiations or signed a commercial contract does not necessarily mean that he can independently assume the promissory note obligation on behalf of the company.

• Unclear nature of the signatory

A director or owner of a company is not automatically liable for personal property just because his signature is on the promissory note.

It is necessary to determine whether the signature was given only in the capacity of the representative of the legal entity or whether the person also assumed a special personal promissory obligation, for example as a guarantor.

• Mismatched documentation

If the contract specifies one claim, the bill of exchange authorization another, and the bill is filled out in a third way, the risk of objections and a longer procedure increases.

• Poor assessment of solvency

A promissory note of a financially unstable debtor may have limited economic value. Before accepting a promissory note, the status of the debtor’s account, its blocking history, publicly available financial data and the existence of other security instrument should be checked.

Risks for the debtor issuing a blank promissory note

A blank promissory note carries serious obligations for its issuer.

Particularly risky are:

• unlimited maximum amount
• formulations that include all current and future debts
• unclear activation conditions
• the creditor’s right to unilaterally determine maturity without clear limitations
• the possibility of transferring the bill to a third party
• delivery of several blank bill of exchanges without internal records
• absence of obligation to return or cancel the bill when the debt ceases
• inconsistency of contract and bill of exchange authorization

The issuer should record the serial number of the promissory note, the person to whom it was handed over, the contract it provides, the maximum amount and the conditions under which the creditor can use it.

Transfer of the bill of exchange and position of the debtor

A promissory note, depending on its content and promissory clauses, can be transferred by endorsement.

Endorsement is a promissory statement by which the holder transfers the rights from the promissory note to another person. Thus, the new owner can become a promissory note creditor.

For the issuer of the blank promissory note, the transfer is particularly significant because the promissory note is no longer with the original contractual partner. The position of the debtor and the type of complaint he can raise against the new holder may depend on the circumstances of the transfer, the conscientiousness of the holder and the legal nature of the specific complaint.

The possibility of transfer should therefore be arranged both in the promissory note itself and in the accompanying documentation. When the parties wish to exclude transfer by endorsement, it is not sufficient to rely solely on the contractual prohibition of the promissory note. It is necessary to check whether the promissory note itself contains an appropriate promissory note clause, such as a “not to order” clause.

The contractual consequences of a breach of the prohibition on transfer and the promissory effects of the transfer are not necessarily the same issue. Therefore, the content of the clause should be adapted to the specific business before the promissory note is issued.

Aval as additional protection

Aval can be given by a third party, the owner of the company, a related company or another person who wants to ensure the payment of the bill.

Not every additional signature on a promissory note is an automatic aval. From the documentation and the place of signature, it must be clear in what capacity the signature was given and for whom the aval is given.

When the director signs the promissory note in the name of the company, such signature does not in itself mean that he has assumed a personal obligation. If personal promissory responsibility is to be achieved, it must be expressed clearly and in accordance with promissory law rules.

Avalista should know that he is not giving ordinary business consent. He assumes a promissory note obligation that can be collected from his own property.

Bill of exchange registration and the role of the National Bank of Serbia

The register of promissory notes and authorizations is a centralized record maintained by the National Bank of Serbia.

In the case of paper promissory notes of legal entities and entrepreneurs, commercial banks play a significant role, through which the registration and submission of promissory notes are carried out.

Before accepting the bill, the creditor should check:

• whether the bill is registered when required
• whether the data in the register matches the bill of exchange documentation
• who is designated as the issuer
• whether the promissory note is properly recorded
• whether there are inconsistencies between the register, contract and authority

Registration does not mean that the debtor has recognized every amount that the creditor subsequently enters. It also does not confirm that there will be sufficient funds in the accounts.

Paper and electronic bill of exchange

The Central Registry of Electronic Bills of Exchange, CReM, started operating on December 1, 2025. The legal basis for its work was created by the decisions of the National Bank of Serbia, which regulate the Register of Bills of Exchange and Authorizations, enforced collection from client accounts and tariffs for NBS services.

An electronic bill is not a scanned paper bill, a photo of the form, or a PDF document. It exists in a dematerialized form within CReM.

With electronic promissory notes, the actions of creation, issuance, transfer, validation, deletion and submission for collection are carried out through CReM and related applications of electronic and mobile banking. Banks control the access of their clients to the system and confirm the transactions requested by the users.

In the first phase, CReM is used by legal entities, entrepreneurs and other business users who meet the prescribed conditions and contract the use of the system with the bank. The inclusion of all citizens is planned for the end of 2026.

E-bills are equal to paper bills in civil and executive proceedings, while extracts from CReM issued by the National Bank of Serbia have the status of a public document.

Paper and electronic bills exist in parallel. The introduction of CReM did not abolish the possibility of using paper bills, and banks are obliged to respect the client’s choice between the two types of bills.

Companies using e-bills should arrange:

• who has access to banking applications and CReM
• who can create and sign promissory notes
• who approves the transfer or aval
• how to check the amount and basis of the obligation
• who monitors the status of the bill and its collection
• how are traces of internal approvals kept

The digital system reduces the risk of physical loss of the document, but does not eliminate the risk of unauthorized actions by employees or incorrectly entered data.

How Is a Promissory Note Collected?

Before submitting a bill for collection, you should check:

• whether the underlying obligation is due

whether the conditions of the bill of exchange authorization have been met in the case of a blank promissory note

whether the promissory note has been filled out correctly

whether the required registration has been completed

whether promissory clauses and relevant deadlines have been complied with

In the case of a paper bill of exchange, the creditor submits it to the bank with appropriate documentation, in accordance with the rules applicable to registration and enforced collection.

With an e-promissory note, the request is submitted electronically through CReM and the connected banking application.

If collection cannot be carried out from the debtor’s account, the creditor may consider enforcement proceedings based on a promissory note or other appropriate document.

Whether a promissory note in a specific case has the status of a reliable document and which objections can be raised depends on its content, due date, type of promissory note, protest clause and other circumstances.

If the debtor disputes the admissibility of filling in the blank promissory note, the amount entered or the existence of the basic obligation, the dispute may also extend to the relationship from the basic contract.

Therefore, billing should not be started in a template manner, without first checking the complete documentation.

The most common mistakes in practice

Accepting a blank bill of exchange of exchange without a written bill of exchange authorization.

Stating that the promissory note secures “all debts”, without indicating the contract and the maximum amount.

Failure to verify the authority of the signatory.

Presumption that the director is automatically liable with personal property.

Mismatch of data in the contract, promissory note and authorization.

Inclusion of interest, contractual penalties or costs not covered by the authorization.

Failure to register or other required procedural actions.

Failure to check the debtor’s financial condition before accepting the bill of exchange.

Failure to agree to return, delete or cancel the bill of exchange after the termination of the obligation.

Inadequate storage of paper bills or uncontrolled access to electronic bills.

Failure to keep records of bills of exchange issued and received.

Relying only on the contractual prohibition of assignment without a corresponding promissory note clause.

Accepting a promissory note as the only security with a high-risk debtor.

Checklist for the creditor

Before accepting the bill of exchange, you should check:

Who is the issuer of the bill?

Who is authorized to sign it?

In what capacity does the person sign?

What contract does the promissory note secure?

What is the maximum amount that can be entered?

Are interest and certain costs included?

When can the creditor complete and activate the promissory note?

Is registration required?

Is the promissory note properly recorded?

Is there a guarantor and is he solvent?

Can a bill of exchange be transferred by endorsement?

Does the bill contain a “not to order” clause if the transfer is to be excluded?

Who keeps the paper bill or controls access to the e-bill?

When is a bill returned, deleted or cancelled?

Is another security instrument required?

When a promissory note is not enough

Additional security should be considered when:

• the value of the work is great
• business partner new or financially unstable
• debt payment term
• the contract is long-term
• debtor’s property already encumbered
• the debtor is often blocked
• a word about cross-border business
• execution of the contract divided into several stages

Depending on the circumstances, a bank guarantee, guarantee, aval, pledge, mortgage, deposit, staged payment or retention of ownership can be arranged.

A bank guarantee can provide a higher level of security, but usually incurs higher costs. Pledge and mortgage bind the payment to a specific property, but require additional formalities. Guarantee and aval depend on the financial capacity of the person giving them.

The choice should be adapted to the value of the work, the creditworthiness of the debtor, the available assets and the costs of establishing security.

Illustrative business example

The supplier delivers goods worth 4,000,000 dinars to the customer. The buyer issues a blank promissory note and signs an authorization according to which the creditor can collect “all claims from the business relationship”.

The customer does not pay the bill. The supplier enters the principal, default interest, contractual penalty, legal fees and storage costs in the bill of exchange.

The buyer disputes the amount, claiming that the authorization did not include the contractual penalty and additional costs.

The problem did not arise until the bill was activated. It arose when the contract and authorization did not specify:

• which accounts are secured
• what is the maximum bill amount
• whether interest and other costs are included
• when the creditor can complete the bill
• whether the bill is transferable
• whether the promissory note itself should contain a “not to order” clause
• which additional security accompanies the job

A blank promissory note provides flexibility, but an indefinite authorization creates risk for both the creditor and the debtor.

Frequently asked questions

Does a promissory note guarantee payment?

No. It can facilitate the legal path to collection, but it does not guarantee that the debtor has money or other assets.

What is a bill of exchange?

It is a signed promissory note that does not contain all information at the time of issue. The missing elements are entered later, in accordance with the agreement and bill of exchange authorization.

Is a power of attorney mandatory?

A written authorization is not a mandatory formal element of a completed promissory note, but it is extremely important in the case of a blank promissory note as proof of the limits of the creditor’s right to complete it.

Can the creditor enter any amount?

You shouldn’t. The amount should correspond to the due claim and the limits of the given authorization.

Is the director personally liable for the promissory note of the company?

Not automatically. Liability depends on whether he signed only as a representative of the company or whether he clearly assumed a separate personal promissory obligation.

What is aval?

Aval is a promissory note guarantee by which a specific person guarantees the payment of a promissory note for another promissory note debtor.

Can the bill be transferred?

It can, depending on its content and exchange clauses. When the parties wish to exclude transfer by endorsement, it should be checked whether the appropriate clause, such as “not to order”, is entered on the bill itself.

Does the promissory note have to be registered?

For promissory notes of legal entities and entrepreneurs, you should check the valid rules of the Register of Promissory Notes and Authorizations, as well as the procedure applied by the commercial bank.

What is the difference between a paper and an electronic bill?

A paper bill exists as a physical document. The e-bill exists in CReM and is not the same as a scanned form or PDF document.

What happens when the debt is paid?

The return, cancellation or cancellation of the promissory note should be regulated by contract and authorization, so that it does not remain an active security after the end of the debt.

Is the promissory note sufficient if the debtor is blocked?

Most often it is not. A bill may be presented for collection, but the actual settlement depends on future inflows and other assets of the debtor.

A Promissory Note Is Part of the Protection, Not a Substitute for It

A promissory note as a security instrument can significantly improve the creditor’s position, but its value depends on the entire business and legal relationship.

A clear basic contract, accurate promissory authorization, proper signature, required registration, credit check and timely processing determine whether the promissory note will be useful security or just another document that does not lead to collection.

For larger value transactions, universal forms should not be used without analyzing the specific relationship, risk and assets of the debtor.

JP Law provides legal support to companies in choosing the appropriate collateral, drawing up contracts and promissory authorizations, checking promissory documents and collection of due claims. The goal of legal analysis is not the promise of secure collection, but the timely recognition of risks and the creation of a more favorable legal position before a problem arises.

The text is informative and does not represent legal advice for a specific business relationship.