What Is Negotiable?
Let me explain what 'negotiable' means in business—it's got two main uses you need to know. First, a negotiable price is one that's up for discussion between you as a buyer and the seller; you can revise it if you both agree, like with an asking price. Second, a negotiable instrument is an asset with a guaranteed cash value that you can swap for goods, deposit, or sell—think of them as marketable or transferable items without registration hassles.
Key Takeaways
Understand that 'negotiable' signals a product's price isn't set in stone. A negotiable instrument is a document with a face value you can exchange for cash or goods, such as a dollar bill or a certificate of deposit. These are liquid assets, easily passed between owners, while non-negotiable ones are illiquid—like a check that only the original payee can endorse for value.
Understanding Negotiable
Many securities, like stock shares, count as negotiable instruments because you can transfer ownership easily, though their value fluctuates with the market. Other items, like cash, hold steady value—a $10 bill stays worth $10, despite inflation affecting its buying power, and you can hand it over to change legal ownership. In legal terms, a negotiable document acts like cash, promising payment in the future with specific timing instructions, carrying the same good faith as actual money.
Characteristics of a Negotiable Instrument
These instruments include an unconditional promise to pay an exact sum, with details on timing like on-demand or a future date, and some must name a specific person. For it to be legally negotiable—as good as cash—it needs to be a signed written document from the issuer, making it transferable. It must explicitly order or promise payment of a set amount.
Types of Negotiable Instruments
You'll encounter several types in financial dealings. A check is a dated draft telling a bank to pay a specific amount on demand, drawn from the payor's account when cashed or deposited. A certificate of deposit (CD) from a bank pays you interest for locking in money for a period, and while you can withdraw early, it costs penalties and lost interest—still, it's negotiable. A promissory note is where one party promises to pay another a set amount later, including details like interest and signatures, often used for non-bank financing and issued by the debtor. Bills of exchange are like post-dated checks without interest, binding one party to pay another on demand or later, common in international trade; time drafts give importers time to pay exporters, and sight drafts require payment on delivery of goods.
Negotiable vs. Non-Negotiable
Non-negotiable means a security's price or contract terms can't change, or it can't be easily transferred. In leases, your monthly rent is usually fixed and non-negotiable for the contract term. Some contracts mix this—salary might be open to negotiation, but conduct policies aren't. For securities, U.S. government savings bonds are non-negotiable, cashable only by the owner, while coins and paper money are fully negotiable and liquid, easily sold or transferred. Non-negotiable items are illiquid, unable to be resold in the market.
Tip
Before you sign any contract, check which terms you can negotiate and which are set in stone.
What Is a Negotiable Instrument?
It's a document with monetary value guaranteeing payment of a specified amount, which you can exchange, sell, or transfer ownership of easily—cash itself fits this description.
What Are Non-Negotiable Documents?
These are contracts issued to one owner that can't be transferred readily, like U.S. government savings bonds, which only the owner can cash.
What Is a Non-Negotiable Check?
This is a check without monetary value, just a receipt for payment records, often given to employees with direct deposit.
The Bottom Line
Negotiable instruments are binding documents with a stated value that you can transfer ownership of, exchange for goods or cash, or deposit. The term also applies to contracts or offers where terms are open to discussion, not fixed.
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