Negotiable: Definition for Goods, Contracts, Securities

What Is Negotiable?

Negotiable is used to describe the price of a good or a contract that is not firmly established, meaning the terms can be modified. Negotiable can refer to a legal contract in which all or a portion of the terms can be adjusted by the parties involved.

However, the meaning of the term negotiable can vary depending on the context. For example, a negotiable instrument or document has a monetary value assigned to it and guarantees payment of an amount from a payer (or issuer) to the payee.

Negotiable instruments are called negotiable because they can be transferred, exchanged, or sold between multiple parties, meaning the legal ownership can exchange hands. Other words used to describe negotiable are marketable, transferable, or unregistered.

Key Takeaways

  • Negotiable can be used to describe the price of a good or contract terms that are not firmly established.
  • Negotiable instruments refer to securities whose ownership is easily transferable from one party to another.
  • Examples of negotiable instruments include certificates of deposit and currency.
  • Negotiable securities are considered liquid, meaning they can easily be transferred or sold in the market.
  • In contrast, non-negotiable instruments are considered illiquid since they cannot be resold in the market.

Understanding Negotiable

The term negotiable can be used in reference to the purchase price of a particular good or security. The asking price may not be set in stone and can be adjusted depending on the circumstance.

However, when conducting financial transactions in an economy, many securities are called negotiable instruments, meaning they can be easily transferred from one party to the next, provided all proper legal documentation is included.

However, negotiable instruments, such as cash, cannot have their value modified. For example, a $10 bill will always be worth $10 but is called a negotiable instrument since the legal ownership of the $10 bill can be transferred from one party to another.

Negotiable can refer to a legal document or instrument used in lieu of cash, which 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 cash flows to be paid. The term negotiable is used to suggest the document or instrument comes with the same faith legal backing as cash under the law.

Characteristics of a Negotiable Instrument

Negotiable instruments contain an unconditional promise to render payment for an exact sum, meaning the amount to be paid from the payor to the payee is stated on the instrument. The agreement also provides instructions on timing, such as on-demand or some time 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 and state a specific amount of money. However, certain negotiable instruments do not have a date associated with them, which does not impact their negotiability.

Types of Negotiable Instruments

There are several types of negotiable instruments that are used in various types of financial transactions.


A check is a dated draft and orders 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.

Checks are signed by the payor or the account owner from which the deposited money is being withdrawn to honor the check. 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 (CD) is a negotiable instrument offered by financial institutions which pay a customer interest in exchange for depositing money in the account and holding it there for a specific time period, such as one year.

Promissory Note

A promissory note is a document in which one party promises to pay another party for 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—or the person that owes the money—rather than the creditor, which is typical for most credit products.

Bill of Exchange and Drafts

A bill of exchange is essentially a post-dated check that does not charge any interest on the amount owed. A bill of exchange 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.

A time draft—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 is also used with international trade. However, a sight draft does not allow the importer any extra time in making a payment to the exporter. Instead, the importer pays the sight draft as soon as the importer receives the goods shipped by the seller. The buyer accepts the draft, signs it, and returns it to the seller.

Negotiable vs. Non-Negotiable

Non-negotiable means 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.


For example, in rental and lease agreements, the monthly amount owed by the tenant would likely be non-negotiable. In other words, the landlord has established a fixed monthly rent or lease payment for the duration of the contract.

Other contracts might only have a portion of the terms stipulated as non-negotiable. For example, an employment agreement might allow the salary to be negotiated, but the employee-conduct policy would be non-negotiable. Conversely, negotiable means that a contract's terms can be modified, depending on the circumstances and parties involved.


Certain securities are non-negotiable, as in the case of a U.S. government savings bond, which can only be cashed by the bond's owner. Conversely, negotiable securities can be transferred, exchanged, or resold between different people, such as the case with currency.


Negotiable securities are considered liquid, meaning they can easily be transferred or sold in the market. In contrast, non-negotiable instruments are considered illiquid since they cannot be resold in the market.

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

Example of a Negotiable Instrument

A common example of a negotiable instrument is a currency, such as the U.S. dollar. For example, a company agrees to pay $100,000 to purchase a piece of manufacturing machinery from a supplier. The buyer and seller work out the terms of shipping the equipment in exchange for payment upon inspection. The buyer inspects the machinery and agrees to the terms, paying $100,000 to the seller. In return, the seller arranges the delivery of the machinery to the buyer's place of business.

The Bottom Line

Negotiable instruments are legal documents that guarantee a monetary value and payment from one party to another. These instruments can have their legal ownership transferred, exchanged, and sold. The term negotiable can also describe a contract that is not fixed, meaning its terms can be changed, depending on those involved.

Negotiable FAQs

What Is a Negotiable Instrument?

A negotiable instrument is a document that has monetary value, which guarantees payment of a certain amount. Negotiable instruments can be exchanged and sold, allowing the legal ownership to be transferred from one party to another. For example, cash is considered a negotiable instrument.

What Are Non-Negotiable Documents?

Non-negotiable documents are contracts in which the terms of a contract for a security's price cannot be changed. Non-negotiable instruments are not easily transferred from one party to another.

For example, U.S. government savings bonds are non-negotiable, meaning they cannot be transferred and can only be cashed by the owner of the bond.

Is a Note Receivable a Negotiable Instrument?

A note receivable is a negotiable instrument since it is considered a promissory note in which a company is owed money at a specific future date. A note receivable is used when a company allows its customers to pay them at a later date.

What Is a Non-Negotiable Check?

A non-negotiable check is a check that cannot be deposited, transferred, or exchanged for cash. An example of a non-negotiable check would be when an employer pays an employee via direct deposit but issues a non-negotiable check outlining the details of the payment.

What Fees Are Negotiable in a Mortgage Loan?

Some fees in a mortgage loan can be negotiated. These fees are often called closing costs and are typically paid by the buyer at the mortgage closing.

Fees can vary from bank to bank. A homebuyer might be able to negotiate the fees charged for the loan origination, credit check, land survey, and home inspection.

What Is Typically Not Negotiable in a Real Estate Contract?

Typically, taxes and fees from the state and local government are seldom negotiated. Depending on the type of transaction, the real estate agent's commission for selling the property is usually non-negotiable.

How Negotiable Are Used Car Prices?

Used car prices are often negotiated. However, it's important that the buyer research the value of the car, its age, and mileage. If the dealer's offering price is far from the car's value, there is a high markup.

Also, many dealers want their customers to finance the car by borrowing money from the dealer in which they earn fees and interest on the loan. Customers who get preapproved for a loan from an outside source, such as a bank, have more leverage in negotiating the price of the car and financing terms.