Accounting Dictionary

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Bank Draft

Definition: A bank draft is a payment on behalf of the payer, which is guaranteed by the issuing bank. The bank can safely issue this guarantee because it immediately debits the payer's account for the amount of the check, and therefore has no risk.

Not only is this a safe transaction for the bank, it is also beneficial, since the bank has ownership of the funds from the time when it debits the payer's account to when the money is eventually paid to the payee (which could be several weeks, depending on when the payer elects to send the check to the payee). In addition, banks charge a fee for this service.