IOU: An informal way to record a debt

When you lend money to a friend or a company borrows funds from a partner, the simplest way to record this agreement is to write a short document. This is exactly what an IOU, an abbreviation for “I owe you” (, is used for; I owe you ).

What is IOU really?

Essentially, an IOU is a note that confirms the existence of a debt. Unlike official contracts or bonds, such a document usually consists of a few lines: the name of the debtor, the amount, the date, and the signature. There are no legal formalities, no complicated conditions – just a simple fact: “I owe you something.”

Debt can take a monetary form, but sometimes people inscribe obligations to return physical items or real estate. The main thing is the mutual agreement that is inscribed on paper.

Why IOU is not a legal document?

Due to their informality, IOUs do not have legal force like promissory notes or bonds. This means that the debtor technically has no legal obligation to repay, even if the paper is signed. People often consider such notes merely as reminders of debt rather than a binding agreement.

The document usually does not specify the consequences of non-payment, specific repayment terms, or penalties. This makes an IOU a quick but risky way to formalize a debt.

Where are IOU inscriptions used?

Family loans are the most common situation. One family member records a debt to another and signs a simple piece of paper.

Companies also use IOU for the inscription of unofficial debt. This can be a debt to a supplier, another company, or even employees for advance payments.

Even under a verbal agreement, people sometimes mention “IOU” as a way to agree to repay the debt later.

Key Difference of IOU

The main feature is simplicity and the absence of a legal structure. IOU is not a contract; it is an inscription. There are no detailed terms, no official registration, and no legal protection for the creditor. If the debtor decides not to repay the money, the inscription will not help in court.

That is why people primarily use IOUs with those they trust.