In the process of executing the functions of loan, discount, deposit, and note issue, and of the incidental business of the bank, there come into its possession numerous forms of credit items which must be presented to the respective debtors for payment. Preliminary, however, to a discussion of the various operations performed by a bank with this end in view, involving as it would an explanation of clearing house procedure and out-of-town collection methods, consideration should be given to the factors that determine when a credit instrument will be presented for payment.
There are various factors which determine when a credit instrument will be presented for payment. These include the question whether the item has a fixed maturity, whether it bears interest, whether it can be used as a medium of exchange or as bank reserve, and whether the law requires presentment within a certain time.
Of the four common forms of bank liabilities to creditors, the first two - Bank Notes and Deposits - are generally payable on demand and do not bear interest, whereas the other two formsBills Payable and Acceptances - are payable at a time fixed by the date of acceptance and the terms of the papers and may or may not bear interest. As a check cannot be readily used by the payee in making payments or for reserves and does not bear interest, the holder has funds which are useless, and at the same time he incurs a certain risk that the check will not be honored. In addition the statutory or common law may require him to present the item for payment within a certain time. Bank notes, on the other hand, attain to general acceptability because the holder may make payments with them and one bank may use the notes of other banks as reserves. If the law were to prohibit such uses, bank notes would be collected at once upon receipt, just as checks are; otherwise the holder would lose the use of the funds represented and the debtor would have them meanwhile without having to pay interest. Acceptances and bills payable having a definite maturity must be presented for payment at the time of maturity. If interest ceases at maturity it is financially profitable to present the item at that time and the law may also require such presentation so as to protect the indorsers of the instrument.