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   Chapter 12 COMMERCIAL DRAFTS

Up To Date Business By Various Characters: 5464

Updated: 2017-12-06 00:03


A commercial draft bears a close resemblance to a letter from one person to another requesting that a certain sum of money be paid to the person who calls, or to the bank or firm for whom he is acting. For instance, the draft shown in the first illustration might be worded something like this:

St. Louis, Mo., Feb. 22, 1899.

Mr. Robert Elsmere,

Jefferson City, Mo.

My dear Sir:

Will you kindly pay to the messenger from the -- Bank who will call to-morrow the sum of three hundred and ninety-seven dollars and charge to my account?

Yours, very truly,

David Grieve.

A sight draft developed from the above letter.

Commercial usage, however, recognises a particular form in which this letter is to be written, and the address of the person for whom it is intended is usually written at the lower left-hand corner instead of on an envelope. Commercial drafts usually reach the persons upon whom they are drawn through the medium of the banks rather than directly by mail. Let us illustrate. Suppose that A of Chicago owes B of Buffalo $200, and B desires to collect the amount by means of a draft. He fills in a blank draft, signs it, and addresses it on the lower left-hand corner to A. Instead of sending it by mail he takes it to his bank-that is, deposits it for collection. It will reach a Chicago bank in about the same way that cheques for collection go from one place to another. A messenger from the Chicago bank will carry the draft to A's office and present it for payment or for acceptance. If it is a sight draft-that is, a draft payable when A sees it-he may give cash for it at once and take the draft as his receipt. If he has not the money convenient he may write across the face "Accepted, payable at (his) Bank," as in the illustration. It will then reach his bank and be paid as his personal cheque would be, and should be entered in his cheque-book. Banks usually give one day upon sight drafts. The draft will not be presented a second time, but will be held at the bank until the close of the banking hours the next day, where A can call to pay if he chooses. Leniency in the matter of time will depend largely upon B's instructions and the bank's attitude toward A. If the draft is a time draft-that is, if B gives A time, a certain number of days, in which to pay it-A, if he wishes to pay the draft, accepts it. He does this by writing the word accepted with the date and his signature across the face of the draft. He may make it payable at his bank as he would a note, if he so desires. He then returns the draft to the messenger, and if the time is long the draft is returned to B; if only a few days, the bank holds it for collection.

No. 1. A sight draft.

No. 2. An accep

ted ten-day sight draft.

No. 3. An accepted sight draft.

No. 4. A time draft.

An accepted draft is really a promissory note, though it is more often called an acceptance. When a man pays or accepts a draft he is said to honour it. In the foregoing illustration A is not obliged either to pay or to accept the draft. It is not binding upon him any more than a letter would be. He can refuse payment just as easily and as readily as he could decline to pay a collector who calls for payment of a bill. Of course, if a man habitually refuses to honour legitimate drafts it may injure his credit with banks and business houses.

It is a very common thing to collect distant accounts by means of commercial drafts. A debtor is more likely to meet-that is, to pay-a draft than he is to reply to a letter and inclose his cheque. It is really more convenient, and safer, too, for there is some risk in sending personal cheques through the mail. There are some houses that make all their payments by cheques, while there are others which prefer to have their creditors at a distance draw on them for the amounts due.

If a business man who has been accustomed to honour drafts continues for a period to dishonour them, the banks through which the drafts pass naturally conclude that he is unable to meet his liabilities.

Some houses deposit their drafts for collection in their home banks, while others have a custom of sending them direct to some bank in or near the place where the debtor resides. If the place is a very small one the collection is sometimes made through one of the express companies.

When goods are sold for distinct periods of credit, and it is generally understood that maturing accounts are subject to sight drafts, there should be no need of notifying the debtor in advance. Some houses, however, make a general custom of sending notices ten days in advance, stating that a draft will be drawn if cheque is not received in the meantime.

Notice the illustrations. The protest notice at the left of Nos. 1, 2, and 4 is intended for the bank presenting the draft for payment. The reason for this will be fully explained in our lesson on protested paper. (See Lesson XIII.) No. 2 shows an accepted draft payable to the order of a bank in the city upon which it is drawn. No. 1 is payable to the order of a bank in the city of the drawer. No. 3 is a sight draft payable to the order of a bank and accepted payable at a bank. No. 4 is a time draft payable to "ourselves"-that is, the Pennsylvania Steel Company.

Drafts are often discounted at banks before acceptance where the credit of the drawer is good. In such cases the drafts which are dishonoured are charged up against the drawer's account.

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