The so-called Bank Draft or Cheque is a special payment method which involves three parties: the payer’s bank, the payee’s bank, as well as the payee. The latter is the very person who is named in the cheque, and who will receive the money. Bank drafts are made out by banks against their own funds which are deposited in another bank.
So practically, the availability of the amount of money that is present in the check (and thus, the payment) is guaranteed by the issuing bank. In order to be sure about the validity of the payment, draft-issuing banks usually review the requester’s bank account, and check whether the funds are enough to clear the cheque. If it is so, the appropriate amount of money is set aside from the account, and is given out when the person named in the draft asks for it.
The reason for which people use bank drafts or cheques is that this method provides additional security to the financial transactions. Because banks charge an extra fee for this kind of service, drafts are usually used for payments which involve a larger amount of money. Besides this aspect, trust is of primary importance when it comes to paying with bank drafts.
So when a business partner seems to be suspicious, businessmen very often use bank drafts in order to decrease the risk of non-payment. As bank cheques are always guaranteed by a bank, the before-mentioned risk is minimal. So for those who sell high-value products for instance, it is a very good idea to request and accept bank drafts as a payment method, as these are secured by third-party banks. |
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