A draft is a financial instrument that allows one party, usually a bank or financial institution, to withdraw funds from another party’s account. Drafts are commonly used for transactions such as payments, purchases, or transfers, and are often referred to as bank drafts, cashier’s checks, or demand drafts.
A draft typically involves three parties: the drawer, the drawee, and the payee. The drawer is the party that initiates the draft and authorizes the drawee to withdraw funds from their account. The drawee is the bank or financial institution that executes the draft and withdraws funds from the drawer’s account. The payee is the party that receives the funds.
Drafts are often used for large transactions, such as the purchase of a house or a car, as they provide a secure means of transferring funds. The use of drafts also helps to minimize the risk of fraud or theft, as they require specific information and authorization to be executed.
Drafts may have fees associated with them, such as processing fees or commission fees, which are typically charged by the drawee or the bank executing the draft. The fees and other terms of the draft are often agreed upon between the parties involved in the transaction before the draft is issued.
