# Negotiable: Definition for Goods, Contracts, Securities

> **Definition**
>
> Negotiable an refer to an asset or contract price that is open to discussion and to financial instruments that can be easily transferred or exchanged for cash or goods.

## What Is Negotiable?

The word negotiable has two distinct meanings in business:

*   A negotiable price is an offer that is open to discussion between a buyer and a seller and may be revised if both agree. An "asking price" is negotiable.
*   A negotiable instrument is an asset that has a guaranteed cash value. The owner may swap it for goods, deposit it, or sell it. These assets also are referred to as marketable, transferable, or unregistered.

### Key Takeaways

*   The word negotiable indicates that the price of a product for sale is not firm.
*   A negotiable instrument is a document with a face value that can be swapped for cash or goods. A dollar bill is a negotiable instrument, as is a certificate of deposit.
*   A negotiable instrument is a liquid asset. It can be easily transferred to a series of owners.
*   Non-negotiable instruments are illiquid. A check issued to one person has no value to another person unless it is properly endorsed by the original payee.

## Understanding Negotiable

Many [securities](https://www.investopedia.com/terms/s/security.asp) such as stock shares are called negotiable instruments because their ownership can easily be transferred. Nevertheless, the value of a security depends on the market and varies constantly.

Other negotiable instruments, such as cash, cannot have their value modified. A $10 bill will always be worth $10 (even though the buying power of $10 can fluctuate with inflation or deflation). Still, it is a negotiable instrument because its legal ownership can be readily transferred from one party to another.

A legal document or instrument is termed negotiable if it is used in lieu of cash. The document represents a promise of payment at some point in the future.

In context, the word negotiable implies a cash value and comes with specific instructions about the timing of future cash flows. The term negotiable is used to suggest the document comes with the same good faith commitment as cash.

## Characteristics of a Negotiable Instrument

Negotiable instruments contain an unconditional promise to render payment for an exact sum, stated on the instrument. The agreement includes instructions on timing, such as on-demand or at some date in the future. Some negotiable instruments must be made out to a specific person or party.

Negotiable instruments can be redeemed for cash or transferred to another party. For a piece of paper to be as good as cash or negotiable by law, it must be a written document signed by the entity drawing on the instrument—making it marketable or transferable.

It must also have an explicit order or promise to pay a specific amount of money.

## Types of Negotiable Instruments

Several types of negotiable instruments are used in financial transactions.

### Check

A [check](https://www.investopedia.com/terms/c/check.asp) is a dated draft instructing a bank to make a specific amount payable on demand. Checks can be written by an individual or a company stipulating an amount to be paid to the payee.

When a check is brought to a bank to be cashed or deposited, the money is withdrawn from the payor's bank account.

### Certificate of Deposit

A [certificate of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) (CD) is a negotiable instrument offered by most banks. The bank pays the customer a set amount of interest in return for depositing money for a set period of time, which may be as little as three months or as long as five years or more.

A CD is negotiable in the sense that the customer may withdraw the balance on demand, although that means losing some of the interest and paying penalty fees.

### Promissory Note

A [promissory note](https://www.investopedia.com/terms/p/promissorynote.asp) is a document in which one party promises to pay another party a specific amount at a predetermined date in the future. A promissory note contains similar financial details to other negotiable instruments, including the amount owed, date of issuance, interest rate, and the signature of the issuer or payor.

Promissory notes are typically used to obtain financing from a source other than a financial institution. However, promissory notes are issued by the debtor—the person who owes the money—rather than the creditor, as is typical for most credit transactions.

### Bill of Exchange and Drafts

A [bill of exchange](https://www.investopedia.com/terms/b/billofexchange.asp) is essentially a post-dated check that does not charge interest on the amount owed. It is a binding agreement in which one party is responsible for paying another party on demand at a future date. Bills of exchange are commonly used in international trade between importers and exporters. It is essentially a pay-on-delivery system.

A [time draft](https://www.investopedia.com/terms/t/time-draft.asp)—a type of bill of exchange—makes a demand for payment at some point in the future. A time draft is typically used in international trade and allows the buyer (the importer) time to pay the seller of the goods (the exporter).

A [sight draft](https://www.investopedia.com/terms/s/sight-draft.asp) is also used in international trade. In it, the importer agrees to pay the stated amount as soon as the goods are delivered.

## Negotiable vs. Non-Negotiable

Non-negotiable indicates that the price of a security or terms of a contract cannot be modified. Non-negotiable can also refer to a security that cannot easily be transferred from one party to another.

### Contracts

In [lease agreements](https://www.investopedia.com/terms/o/operatinglease.asp), the monthly amount owed by the tenant is almost always non-negotiable. The landlord has established a fixed monthly rent or lease payment for the duration of the contract.

Other contracts might mix negotiable and non-negotiable terms. An employment agreement might allow the salary to be negotiated, but the employee conduct policy would be non-negotiable.

In this case, negotiable means that a contract's terms can be modified depending on the circumstances and parties involved.

### Securities

Certain securities are non-negotiable, as in the case of a [U.S. government savings bond](https://www.investopedia.com/terms/u/ussavingsbonds.asp), which can be cashed only by the [bond's](https://www.investopedia.com/terms/b/bond.asp) owner.

Negotiable securities can be transferred, exchanged, or resold between different people. Coins and paper money are negotiable securities.

### Liquidity

Negotiable securities are considered [liquid](https://www.investopedia.com/terms/l/liquidity.asp), meaning they can easily be transferred or sold in the market. Non-negotiable instruments are considered [illiquid](https://www.investopedia.com/terms/i/illiquid.asp) since they cannot be resold in the market.

> **Tip**
>
> Before signing a contract, it's important to know which terms are negotiable and which terms are non-negotiable.

## What Is a Negotiable Instrument?

A negotiable instrument is a document that has monetary value, guaranteeing payment of a specified amount. Negotiable instruments can be exchanged and sold, allowing their legal ownership to be easily transferred from one party to another.

Cash is a negotiable instrument.

## What Are Non-Negotiable Documents?

Non-negotiable documents are contracts that are issued to a single owner. They cannot be readily transferred to another owner.

For example, U.S. government savings bonds are non-negotiable, meaning they can only be cashed by the owner of the bond.

## What Is a Non-Negotiable Check?

A non-negotiable check has no monetary value. It is essentially a paper receipt provided to a payee as a record of payment.

Non-negotiable checks are typically given to employees whose paychecks are automatically deposited.

## The Bottom Line

Negotiable instruments are legally binding documents that guarantee a stated monetary value when their ownership is transferred from one party to another. They can be exchanged for goods or cash or can be deposited by their owners.

The term negotiable can also describe a contract or offer that is not fixed, meaning its terms are up for discussion.