What do you understand by the Term IOU?

Posted on 23 September 2009

There are several financial transactions that are so routine and informal that a legal contract would seem like overkill. Instead of that, a less complicated method is preferred to use by a number of people and that method is referred to as an IOU. An IOU, that can be in written or verbal form, is just an informal acknowledgement of a small debt, it is usually between friends, co-workers or family members. For instance an employee who borrows some change from a petty cash fund, may write an IOU to account for the money.


From where the name comes?

The name IOU has been taken from the literal phonetic spelling of “I Owe You.” The debtor when writing out a formal note acknowledging a debt often found that it is much easier to abbreviate “I owe you…” to IOU. Even though the origin of this abbreviation is English, other countries also recognize the meaning that is there behind an informal IOU.

Not similar to other financial Contracts

An IOU is not just similar to a formal promissory note or other financial contract. T0 the drafting of an IOU there are rarely any witnesses, and the repayment obligations may or may not be spelled out directly. It might be a difficult thing to enforce an informal IOU in court, since the document may not be notarized or not even it is acknowledged by the debtor. An IOU is considered to be an acknowledgement of a debt, but the total sum may be so much negligible that legal collection actions would be counterproductive.


Serves as a financial placeholder for Small Debts

Lenders and borrowers should consider limiting the amount of any loan secured by an IOU due to the reason that an IOU is not always legally binding and the repayment terms may be non-existent. If there is anything that is above a friend or family member’s comfort zone then it should be secured with a more formal promissory note, not an informal or verbal IOU. Primarily an IOU is used as a financial placeholder for small debts or nominal payments.

IOU markers by habitual gamblers

In certain gambling circles, a losing better may ask for a special IOU which is known as a marker to insure repayment to the casino. Periodically, it may be decided by the casino or other lender to collect on this IOU, especially in case if the gambler happens to win a large sum of money elsewhere. As a routine, casinos and other gambling outlets hold a significant number of IOU markers from habitual gamblers.

Briefly, if you are not sure that whether the transaction is a loan or a gift, then the best thing us that you should ask that if an informal IOU is necessary. The lender may not even bother to collect on the IOU, but it ensures that at least both parties have recognized a debt and they have some written record of the transaction.

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2 Responses to “What do you understand by the Term IOU?”

  1. Noah Hereth says:

    Fantastic web site! Love the content you have on right here. Please keep up the great work and I are going to be confident to visit quite often. Thanks very much!

  2. IOU( I own you) is not just similar to a formal promissory note or other financial contract.I agree it is awesome. More power and good luck.

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