What is an IOU and how does it work?

An IOU is legal evidence of a debt, and whether the note is handwritten, typed, notarized or not, it does have evidentiary value in court. In many cases, that could be enough to allow you to collect if the situation were to ever come before a judge.

What is the difference between a bond issue and an IOU?

A bond issue is sometimes called an IOU, for example. Accounts receivable may informally be referred to as IOUs. A bookkeeper may record an outstanding debt as an IOU. The IOU is thus an accounts receivable item and is counted as an asset on the balance sheet. How exactly it is recorded depends on the time frame:

What happens if you don't repay an IOU?

However, since the IOU doesn't specify a time for repayment, that could cause problems with collection. The borrower could raise a defense against a collection action by alleging that he or she hasn't forgotten the debt and still intends to repay it sometime in the future.