A draft is a written order from the first party to the second party to pay to the third party a certain sum of money at a certain time.

The first party is called the "drawer."

The second party is the "drawee."

The third party is the "payee."

There are two kinds of draft.

The first is usually where the cashier of one bank, through his own check, draws on another bank for the cash difference in their accounts with each other.

The second form of draft is the most usual and is the one we shall here consider.

The cashier's draft is always for cash and the demand is always honored. The ordinary business draft may be for cash or for goods.

The business draft is usually honored, but there are circumstances under which it may be ignored.

TO MAKE A DRAFT

But let us suppose that the draft is all right and that a merchant, let us call him Henry Thomas, and suppose him a resident of Philadelphia, has a bill against James Taylor, of Cleveland, and he wants to collect it, without recourse to law. How will he go about it?

The bill is for $100.

Mr. Thomas writes this draft:

Philadelphia, Pa., Sept. 5, 1910.
At sight pay to the order of
Johnson National Bank of Philadelphia
One hundred………………. dollars.
With exchange
and charge same to
Henry Thomas.
To James Taylor,
Cleveland, Ohio.

Having drawn his draft, Mr. Thomas takes it to the Johnson National Bank for collection. The collection is actually made by some bank in Cleveland to which the Johnson has endorsed it over.

If Mr. Thomas wished he might have sent his draft direct to the Cleveland bank, but he no doubt thought it better to transact such matters through his own bank.

Or if Mr. Thomas lived where he was not in touch with a bank, he might have drawn through any person whom he knew in Cleveland.

On receiving the draft for collection, the Cleveland bank would at once give it to a clerk who would without delay present it to Mr. Taylor.

Mr. Taylor, having written his acceptance of the draft, is given three days grace in which to make payment.

In states where days of grace are not allowed, he would have to pay at once.

Mr. Taylor writes the word "accepted," with the date and his name across the face of the draft, and if he does not pay cash, he states in the writing where payment will be made.

Of course, Mr. Taylor cannot be compelled to accept a draft. There may be good and honest reasons for his not doing so, but having accepted it, in business honor he is bound to pay it.

The term "Sight draft" explains itself, but the order to pay a draft may indicate, and often does, the number of days allowed for payment, after presentation.

FOR COLLECTION

What should be done by the man to whom a bill or a note is due, when the debtor lives in a place where there is no bank?

In that case he must learn in some way the name of a promising person to make the collection for him.

In this case he makes out the draft as before, and adds the words "for collection." This acts as a bar to any transfer of the paper.

Most banks refuse to handle a draft marked "for collection."

DISHONOR

Drafts are not necessarily duns.

Some country merchants prefer to pay their bills to wholesalers in that way, so that collecting drafts is no small part of the business of the ordinary bank.

While men are not compelled to meet drafts when presented, if the amount is due and he defaults or refuses to pay he injures his own credit.

In refusing a just draft he is said to "dishonor" it.

So sure are wholesalers that their drafts will be met by their distant debtors that they do not hesitate to draw against them when deposited for collection, regarding them as cash to their credit in bank.

PROTESTS

When a draft is not accepted or paid when due, if it be a time draft, it is protested in the same way as a note.

The protest of a draft serves as a notice to the drawer of its non-acceptance.

Like notes and checks, drafts may be transferred by a similar endorsement.

BUYING DRAFTS

If I wanted to pay a bill for $150 to Albert Holt, living at Wallace, Kansas, and did not wish to trouble him with a check, how would I go about it?

1. I might express the cash, which would be expensive. 2. I might send it in postal order, not always certain. 3. I might send it by a trusted hand, but might have long to wait before I found a friend going out to Wallace.

I am living in New York City, and am familiar enough with banking to know that New York is a great financial center and is in constant communication with nearly all the outside banks.

The outside banks keep money in deposit here, and the New York banks, particularly in the spring and autumn, keep deposits with their correspondents.

With my $150 and a small extra sum to pay my bank for drawing the draft, I go thither and buy a draft for the sum I owe Mr. Holt.

I mail this draft to my creditor and he can cash it without loss in his home bank. Here is the form:

No. 101.
Madison National Bank of New York.
Pay to the order of Albert Holt,
One hundred and fifty dollars ($150.)…
………. L. N. Jones,
Cashier.
To Prairie National Bank,
Wallace, Kansas.

A GOOD PLAN

When you buy a draft which you mean to send off in payment of a debt, a good plan is to have it made payable to yourself.

Let us suppose it is the case of Albert Holt. You transfer the draft to him by writing across the back, "Pay to the order of Albert Holt," and add your signature.

Now as all drafts are returned, as payment vouchers, to the banks from which they were issued, and as Mr. Holt must have signed the draft to get his money, it follows that there is a record of his having received it, and this has all the force of a receipt.

Do not endorse a draft with just your name, for in that case, anyone into whose hands it falls may collect. First write "Pay to the order of" the person for whom it is intended.

GOOD AS CASH

A draft made payable to yourself is as good as cash, and far safer to carry.

If you are identified at any bank between the Atlantic and
Pacific, you can have your draft cashed.

All banks furnish blank drafts.

Never endorse a draft made payable to yourself, and this applies to a check, until you are about to use it.

It is a good plan never to sign your name until it is actually necessary.

Some people have the foolish habit of signing their names on stray bits of paper.

Do not get into this habit, even if there is no space to fill out a note or order above the signature.