At the time of foreign transactions, the payment becomes the biggest problem for the business owners and traders. The situation becomes worse when the payment is very large. The primary reason for this problem/barrier is different currencies and exchange rates.
The two ways to pay the foreign traders are bank cheques and bank drafts. Most business owners prefer bank cheques because they are aware of the concept and find it quick. But bank drafts are also not less. The traders prefer Bank Draft Buy and Sell for easy transactions just like bank cheques. It’s just limited information that keeps the business owners away from such a beneficial concept.
In this post, we discuss bank drafts in detail including the advantages.
Definition of a bank draft
It’s a mode of payment issued by a bank on the behalf of the payer allowing another bank to withdraw the fund directly from it. It’s a negotiable instrument that is used just like a bank cheque but in a bit different way. Here, the payer does not have to sign the document; he/she has to only inform the bank about the amount that has to be paid. Once the payment is transferred, the amount decreases from the payer’s account.
Working of the bank drafts
For both Bank Draft Buy and Sell, the working model is the same. Under bank draft processing, the amount is transferred from the financial institution, and there is nothing to do with the payer’s account. Unlike bank cheques, there is no such issue of bouncing. It’s a guaranteed payment declared by the bank.
In case the fund is not enough in the payer’s account, the bank authority does not release the draft. It’s a way of secured payment for the receivers.
Things to consider when comparing bank drafts
There are certain factors and limitations of the bank at the time of issuing the drafts. So, the payer should compare them amongst the financial institutions and select the right option.
- Fees for obtaining a draft– Issuing a bank draft is not free of cost. In addition to the draft amount, the payer has to pay the service fee. So, it’s an important factor to look at for saving a few bucks.
- Available Currencies and countries– As already said, bank drafts are majorly used for overseas payments. So you should check with the bank if it is issuing the draft for the destined country and desired currency. If not, you will have to look for another option.
- Processing time- After getting instructions from the payer, banks or other financial institutions take a certain time to process the draft. You should compare the processing time amongst all the banks and select one that works quickly.
- Application options– Though the process and application options are almost the same, you should confirm before initiating. If you find the process is lengthy with several steps, switch to another bank.
Advantages of bank drafts
- Unlike other payment options, bank drafts are accepted in the majority of countries around the globe.
- Even with the service charges, bank drafts are a comparatively cost-effective method for sending funds overseas.
- Bank drafts speed up the process because they are created in local currency which does not require conversion.
- A bank draft is one of the secured payment options because it is deposited in a bank and no one can cash it.
Now, business owners and traders know very well about the bank drafts. So we hope they will use the same for their next overseas payment.