A share draft is a security that provides for a deferred payment or unconditional payment for purchased goods, works or services at a predetermined date. A draft check is a security that confirms the obligation of the debtor (drawer) to pay the specified amount to the creditor (drawer) within a specified period after the presentation of the bill of exchange for payment.
In this case, the right of claim may pass to third parties without extra terms and agreements with the drawer.
A bill of exchange is used as a means of payment and settlement. It is also used as a means of issuing a loan, which was provided by the seller to the buyer in commodity form in the form of a deferred payment.
Therefore, we can say that a bill is a dual market instrument that secures obligations on the one hand and debt repayment on the other.
Draft check functions
A draft check is the most important financial instrument that performs certain functions:
A bill of exchange is primarily a means of issuing a loan. With the help of a bill, you can pay for the purchased goods or services, pay the loan back, issue a loan to another person. For creditors, the formal and material severity of the bill, its easy transferability and speed of debt collection are attractive.
Another function of a draft check is the ability to use it as security for transactions. In other words, the holder of a bill of exchange has the right to receive money on a bill of exchange earlier than the term established in it in two ways: by registering the bill of exchange in a bank or by obtaining a loan secured by this document.
The bill serves as an instrument of cash settlement. In addition, it is able to speed up settlements, since before the moment of payment, the bill passes through several holders, extinguishes their obligations and thereby reduces the need for real money.
- Bill transactions are the issuance of cash loans.
- Enterprises and organizations can carry out such operations bypassing the banking system with its terms and mandatory fees.
- In addition, the bill is financially mobile. As a security, it can always be sold on the stock market or pledged to a bank.
- Abstractness of a bill. That is, obligations under a bill of exchange have only monetary value and are not directly related in any way to the specific obligations of the drawer.
- The ability to transfer to third parties without documenting such an operation;
- Indisputable promissory draft check. That is, the requirements for the bill are unconditional for execution and are implemented in full.
- Bill solidarity. That is, all persons involved in the execution and circulation of the bill bear responsibility for the bill.
- Documentation of a bill. That is, a bill of exchange is drawn up in the form of a strict reporting form in paper.
In case of debt non-payment within the stipulated period, no legal proceedings are required. In this case, it is enough to make a notarial protest.
What tasks does a bill of exchange solve?
The use of a bill solves the following tasks:
- creates terms for unconditional receipt of funds for the goods supplied, work performed or services rendered;
- makes it possible to conclude a transaction for the sale and purchase of goods, works, services without a term for an advance payment;
- can be used as an effective means of payment between legal entities and individuals for offsetting mutual claims;
- can be an object of sale or purchase or be a subject of pledge.