IOU

An IOU is a written, informal, and non-legally-binding promise to do something for someone or give someone something.

In the business world, an IOU is usually a precursor to a more formal agreement, like a contract; the IOU acts as kind of a placeholder until the parties involve can get back to their desks and put all the formal business stuff together.

So...what do they look like? What do they say? Well, it varies. There’s no IOU standard or anything.

Say, for example, that we promised to knit 25 pineapple sweaters (sweaters with pineapples on them, not sweaters made of pineapples, to clarify) to sell at our friend’s charity fundraiser. When we get to the hall where the fundraiser will be, we realize we only have 20 sweaters. Five of them have disappeared. So we leave the 20 sweaters and scribble a note that says something like, “IOU five pineapple sweaters. Will return by noon with the goods.” Then we scramble home and search for the missing items...but in the meantime, our friend knows we didn’t just short her five sweaters and disappear into the night.

In that example, we probably don’t need to follow up with a formal written contract. We just need to deliver the sweaters by noon or risk seriously disappointing our friend. But let’s say that, instead of being a lone knitter trying to help out a friend, we actually operate a high-volume pineapple sweater manufacturing facility. And let’s say that, instead of making them for a charity fundraiser, we’re producing them for a major department store chain. And now let’s say that we’re not five sweaters short on an order, but five thousand sweaters short. That’s a problem. And we can go ahead and scribble an IOU on a crusty napkin somewhere, but there’s a good chance our buyer is going to want something a little more formal in writing to make sure they get the sweaters they’re owed in a timely fashion.