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A bank draft is a negotiable instrument where payment is guaranteed by the issuing bank. Banks verify and withdraw funds from the requester’s account and deposit them into an internal account to cover the amount of the draft. A seller may require a bank draft when they have no relationship with the buyer.

A draft drawn by a bank on itself. The draft is purchased by the payor and sent to the payee, who presents it to its bank for payment. That bank presents the draft to the payor’s bank for reimbursement.

A bank draft or banker’s draft is a check that it guaranteed by the bank that issues it. In most cases, it lists the bank’s main office or branch as the issuer, and the person or company that is receiving the money as the payee; the name of the person who requested the draft is often not included. Unlike a personal check, which could bounce if the account holder doesn’t have enough money to cover it, there is virtually no chance that a legitimate bank draft will not be honored and paid in full. This term is more commonly used in the UK than it is in the US, where a cashier’s check is a similar, more common method of guaranteed payment.

How a Bank Draft Works.

A banker’s draft, also known as a banker’s cheque, is like asking a bank to write a cheque for you. You give them your money and they give you a cheque for that amount, to give to the person you’re paying. For this reason, they do not bounce because of a lack of funds.

A bank draft is a prepaid payment method performed by a financial institution on behalf of its client. It is a guaranteed form of payment which is stated in a special document signed by the bank. It is often called a bank’s check because the financial organization pays the money taken from its user in advance.

Such a payment option can be used for essential purchases, loans or debts payments to third-party persons, in situations when the recipient of the money does not want to take a regular check, cash or other types of remittance.

Bank draft: how does it work? To better understand what this procedure means, we will explain exactly how your money gets from your account to the bank’s check and is paid to the third-party person. Firstly, there is no original signature on such documents. Usually, you can only see the automated one created by the financial institution’s machine. Secondly, no draft is possible if you have no money on your account or were not approved to receive a credit from your business organization beforehand. Thirdly, only banks can issue drafts, which can also be called legal copies of the check with a higher level of protection.

Note: The term bank draft is used for other situations, and use varies from country to country. For example, electronic bill payments that move funds directly from a bank account to a service provider (such as an electric utility provider or an online merchant) are also called drafts.

Example: A bank draft is a payment on behalf of the payer, which is guaranteed by the issuing bank. For example, a bank draft may be required by the seller when a home or an automobile is being sold. There are two situations in which a seller may not succeed in collecting funds under a bank draft.

What are bank drafts for?

Bank drafts are useful for major purchases where a significant amount of money changes hands. For example, you could use a bank draft:

1. To make a down payment on a house
2. When buying a car from a dealer
3. For important transactions made through a notary
4. When making major purchases overseas (car, boat, artwork, jewellery, etc.)

Bank drafts don’t expire. However if you’re overseas, some financial institutions may refuse drafts that are several months old. So it’s best not to get them too far in advance.

Bank Drafts vs. Money Orders.

A bank draft and a money order are both prepaid, with a specified amount printed on the instrument itself. Each is considered a secure method of payment from a third-party institution. The payer does not need to carry large amounts of money when using a bank draft or money order. However, a bank draft is a check drawn on a bank’s funds after accepting the amount from the issuer’s account, whereas cash is used when purchasing a money order.

Important: You can only purchase bank drafts from a bank, while money orders can be purchased from certified stores, post offices, or banks.


Some of the advantages are as follows:

*Usefulness: They are handy financial tools. It is straightforward to use and has a high value in the market to settle financial transactions.

* Beneficial for Large Transaction: This tool is generally used in case of substantial transactions such as the purchase of a car, house, or any valuable items. They can be drawn for any amount of the sum involved, and it is a guaranteed payment tool. Thus it helps the parties to avail of the benefit of large amounts of transactions.

* Risk: The risk involved in this type of banker’s cheque is negligible. That’s why large transactions can be confidently done by using this tool. The security measures are very well established for this type of tool as compared to cheques or other means.

* Authenticity: It is a very authenticated tool. It is non-transferable without proper formalities. So any chance of forgery etc. has nothing to do with that. The bank issues the drafts with all the formalities, and the receiver has to just present the draft before the bank to remit the amount. The guaranteed payment option through this type of tool also adds to its authenticity.


Some of the disadvantages are as follows:

* Little Expensive: The issuance of demand drafts is a bit expensive. The bank charges a specified amount over and above the amount to be transferred. Each bank has different charges, which is dependent upon the number of drafts that are to be made. On the other hand, it is somewhat convenient for the parties to sign cheques rather than visiting a bank branch to issue the drafts.

* Consuming: The process of bank drafts is time-consuming. The method of getting the draft is through banks only. The person should personally visit the bank branch to collect the draft. Also, the receiver has to present the draft to the bank for remittance. Therefore, nowadays, banks accept online transactions, which not only save time but also save money.

* Deadline: There are deadlines to present the draft before the bank. If the drafts are somewhat older (2 weeks, for example), the bank refuses the remittance, and the refund process also takes time from the sender’s point of view. The deadlines of the drafts are very less as compared to the cheques. Therefore, nowadays, the financial transactions are dealt with via cheques or online methods.

A bank draft is a negotiable instrument where payment is guaranteed by the issuing bank.
Banks verify and withdraw funds from the requester’s account and deposit them into an internal account to cover the amount of the draft.
A seller may require a bank draft when they have no relationship with the buyer.
Banks normally charge a fee for a bank draft.

Are Bank Draft Payments Safe?

To put it simply, it provides users a quick way of accessing their money., a bank draft is guaranteed by the bank. It means that the payee is guaranteed the availability of funds. In such a way, bank drafts are safer than personal checks, which might bounce if there are no sufficient funds in the payer’s account.

How do I get a bank draft?

Getting a bank draft is easy. Here’s how:

1. Go to your financial institution. The teller assisting you will verify your identity.
2. For businesses, some institutions accept emailed or faxed orders for bank drafts.
3. The bank teller will withdraw the money from your account and transfer it to one of the bank’s accounts.
4. They will then prepare the draft and give it to you.

As always, you’ll need to be careful once you leave the bank, whether you’re holding cash or a document such as a bank draft, to avoid theft.

How do you deposit a bank draft?

You deposit bank drafts the same way you would a cheque. That means you can deposit it:

1. At a bank
2. At an ATM
3. Using your financial institution’s app

It can take a few days between when the money is withdrawn from your account and when the funds are available.

How to prevent fraud.

If you’re selling something and the buyer wants to pay with a bank draft, it will be hard to tell if it’s authentic on your own. To make sure the document you have in your hands is the real deal, contact the financial institution that issued the draft.

All in all, bank drafts are a handy payment method for making large purchases. Of course, there are other secure forms of payment in use these days, such as Interac e-Transfers. E-transfers have become a very popular option, but since every situation is different, you’ll want to weigh your options to determine which payment solution is right for you.

Want to buy a bank draft?

Contact Bectic Finance Company Limited for more information.

At Bectic Finance Company Limited, we provide Bank and Fnancial instrument services to our clients global- UK, USA, UAE, Europe, India, China, Asia, Middle East and Africa.

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