Demand Draft

Demand Draft

What is an application project?

A draft application is a method used by an individual to make a transfer payment from one bank account to another. Application drafts differ from normal checks in that they do not require a signature to be cashed.

In 2005, due to the increasing fraudulent use of sight drafts, the Federal Reserve proposed new regulations increasing the right of victims to request a refund and making banks more responsible for cashing fraudulent checks.

Key points to remember

  • A sight draft is a way to initiate a bank transfer that does not require a signature, as is the case with a check.
  • A sight draft is a prepaid instrument, so you cannot interrupt its payment in the event of fraud or an ill-intentioned recipient.
  • Since sight drafts can be used to defraud people, there are now regulations allowing victims to recover funds from the holding bank.

Understanding the draft request

When a bank prepares a sight draft, the amount of the draft is taken from the account of the customer requesting the draft and is transferred to an account in another bank. The drawer is the person requesting the draft request; the bank paying the money is the drawee; the party receiving the money is the beneficiary. They were originally designed to benefit legitimate telemarketers who had to withdraw funds from customers’ checking accounts using their bank account numbers and bank routing numbers.

Suppose a small business owner purchases products from another business on credit. The owner of the small business asks his bank to send a draft request to the company for the payment of the products, making him the drawer. The bank issues the project, making it the draw. Once the draft has expired, the owner of the other company brings the draft to his bank and collects his payment, which makes him the beneficiary.

Draft request against check

A sight draft is issued by a bank, while a check is issued by an individual. In addition, a sight draft is drawn by an employee of a bank, while a check is drawn by a customer of a bank. Payment for a sight draft cannot be stopped by the drawer as he can do with a check.

Because a sight draft is a prepaid instrument, payment cannot be interrupted, while payment of a check can be refused for insufficient funds.

In addition, a draft cannot be hand delivered like a check. It can be drawn regardless of whether an individual has a bank account, while a check can only be issued by an account holder.

Example of a draft request

For five days in July 2020, the fourth series of the Sovereign Gold Bond Scheme (SBS) in India allowed investors to buy gold bonds at 2.75% interest, payable semi-annually. Individuals, Hindu undivided families, trusts, non-profit organizations and universities were able to purchase a minimum subscription of 1 gram and a maximum of 500 grams per investor. Payment was to be made in cash, draft, check or electronically.

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