B2: 2.01(b) Bank drafts

What is a bank draft?

A bank draft (also known as a banker’s draft) is a non-cancellable cheque that is paid from the bank’s own money.

They are often used when a supplier is unwilling to accept a normal cheque from a business or individual as they feel there is a risk that the cheque would be dishonoured. In these circumstances the supplier will accept a bank draft as there is almost no risk that this would not be paid.

How to pay by bank draft

A business that wishes to pay by bank draft would contact its bank and provide them with details of who should be paid, the amount to be paid and the bank account the money should be taken from.

The bank will prepare the bank draft and will transfer money from the business’ bank account to cover the amount on the bank draft and the bank’s fee for the transaction. The bank draft will then be given to the business who can then pass it to whoever is being paid.

As such, and unlike a normal cheque, a bank draft will leave a business’ bank account immediately.

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