1. Drafts. 2. Cheques

1. Drafts

A draft is an unconditional written order by which one party directs a second party to pay to the order of a third party or to the bearer a certain sum of money on demand or at a definite time. A draft is also known as a bill of exchange.

The usual purpose of a draft is to collect money owed. A draft initially involves three parties — the drawer, the drawee, and the payee. The drawer is the person who executes or draws the draft and orders that payment be made. The drawee is the person directed to pay the draft. The payee is the party to whom this commercial paper is made payable.

Drafts are sometimes described in terms of the time of payment. If the draft is payable at sight or on demand — that is, when it is presented to the drawee by the one holding the draft — it is a sight draft. The drawee is expected to pay when the draft is presented.

If a draft is payable at a specified time, or if it is payable at the end of a specified period after sight or after the date of the draft, it is a time draft. .

2. Cheques

A cheque is a special type of draft by which a bank depositor orders the bank to pay money, usually to a third party. Cheques are usually written on special forms provided " by bank for a fee. The drawee must always be a bank for the instrument to qualify as a cheque.

The bank, according to the contracts with its depositors, agrees to honor (pay when due) each cheque as long as sufficient funds remain in the depositor's account. As a debtor of the depositor, the bank must honor the cheques in return for the right to use the depositor's and retain a sizable percentage of all funds deposited

When a cheque has been lost or stolen, the drawer should direct the bank not to pay it. Such an instruction is called a stop payment order. Banks usually charge a small fee to stop payment on a

cheque.

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