A draft, or bill of exchange, is, in fact, a letter written by one person to another living in a different place, requesting him to pay a sum of money to the order of the drawer or to a third person. Commercial usage recognizes particular forms for writing these drafts.

There are two kinds of bills of exchange, Domestic and Foreign.

Domestic Bills of Exchange are payable in the same country in which they are drawn, and are commonly called Drafts.

Foreign Bills of Exchange are payable in another country from that in which they are drawn, and are called Foreign Drafts.

The parts of a bill of exchange are the Heading, the Order, the Repeated Amount, the Signature, and the Address.

The first four of these parts correspond, respectively, in position, arrangement, capitalization, and punctuation to the heading, the promise, the repeated amount, and the signature of a check or promissory note.

The Address, preceded by the word To, is begun either on the same line as the signature, or on the next line, but as far to the left as possible. It usually includes both name and location, each of which occupies a line by itself.

The person who signs a bill of exchange (or draft) is called the Drawer or Maker ; the one to whom it is addressed, the Drawee; the one to whom it is made payable, the Payee; and the person who is in legal possession of it, the Holder.

Bills of exchange, like notes and checks, are either negotiable or non-negotiable, according as they are payable to the order of a person or simply to the person himself. The former are the more common.

A Sight Draft is one payable at sight; that is, on presentation.

$257 00/100. Savannah,Ga., March29, 1901.

At sight, pay to the order of Booker

Washington, Two Hundred Fifty-seven

Dollars, value received, and charge to our account.

George P. Richards & Co.

To Theodore P. Thomas & Co.,

New York City.

A Time Draft is one made payable a certain specified length of time after sight or after date.

$469 00/100. Mobile, Ala., March 1, 1901.

Thirty days after date, pay to the order of Sylvester Cutler, Four Hundred Sixty-nine Dollars, and charge to the account of

John G. Cannon.

To J. B. Smith & Co., Phila., Pa.

Foreign bills of exchange are usually made in sets of three, which are alike in all respects except their designations of first, second, and third. The three bills are usually sent by different mails, and whichever arrives first is used. The others are then worthless. These bills differ from ordinary drafts, by the insertion in each, of the condition that it is to be paid if the other two of the set are unpaid.

Drafts are sent through banks, and not through the mails, and are used to avoid the risk, inconvenience, and expense of sending actual money from one place to another. The principal object for which it is used is to collect money due from the drawee to the drawer. For instance, if Jones, of Chicago, owes Smith, of Philadelphia, $750, Smith may draw on Jones for that amount. He will deposit the draft properly drawn with his own bank in Philadelphia, which will forward it to

Exchange for 800.

New York, Sept. 3, 1900.

Ten days after sight of this First of Exchange {second and third unpaid), pay to the order of E. N. Towne, Eight Hundred Pounds sterling, value received, and charge to account of fames H. Moody & Co.

To Drexel, Morgan & Co.,

London, England.

the bank with which Jones does business in Chicago, and which is called its correspondent. The draft when received in Chicago is presented to Jones at his place of business, who pays it by check or cash, or stamps or writes across its face :

Accepted

June 12, 1900.

Payable at

First National Bank.

John Jones

Or, he may write across the face simply "Accepted" and his name. The draft will then be paid at Jones' office when it falls due.

The draft in the former case becomes a check on Jones' account at the First National Bank when it is charged against his account. The bank in Chicago then credits and advises the bank in Philadelphia, which in turn credits Smith.

By courtesy Smith, when making the draft upon Jones, advises him at once of the fact, that he may be prepared to pay it.

If not paid, the draft is protested - that is, a formal statement of the fact of presentation is made by a notary and served upon drawer and all who have indorsed their names to the draft.

But if the drawer does not wish to incur the expense of protest fees, or to injure the credit of the debtor, there may be pinned to the draft a piece of paper with the words "No protest" upon it. This is to notify the bank presenting the draft that the drawer does not wish it protested if not paid. It is important that this slip of paper be detached before the draft is presented, or else the draft would lose its "force."

Drafts Differ From Checks

When a draft is drawn a certain number of days after sight, or after date, it has three days of grace.

A check is practically a sight draft upon a bank; but there is a marked difference between a "check" and a "draft." For example : The form and wording are different; a check is drawn upon a bank or banker with whom funds have been deposited ; a draft is drawn upon an individual or business house.

Checks are used for paying money to creditors; drafts are used as a means of collecting moneys due to the one drawing.

Checks, when properly drawn and presented, must be paid by the bank if it has funds belonging to the drawer.

The party drawn upon is under no obligation to honor a draft, if for any reason he chooses not to do so.