Payable-Through-Draft (PTD)

What Is Payable-Through-Draft (PTD)?

Payable-through-draft is a method to issue a payment via a specific bank. These instruments draw money from the account of the issuing corporation and use them to pay bills. Insurance companies frequently use a payable-through-draft mechanism to pay claims.

The face of the payable-through draft check shows the bank's name. However, the bank verifies neither the signature nor the endorsement, which is the responsibility of the issuing company. Credit union share-drafts are also payable-through-draft instruments (usually cleared by a correspondent bank). 

Key Takeaways

  • Payable-through-draft (PTD) is a form of bank-mediated payment utilized by business entities.
  • A bank will guarantee a draft on behalf of a business for immediate payment to the recipient.
  • A PTD can allow a company to pay workers in remote locations.

How Payable-Through-Draft Works

There are several types of drafts that stipulate the requirements for the transfer of funds. Payable-through-draft allows the transfer of funds, under controlled conditions, on behalf of a company.

This type of draft payment may be used by a company which has employees who are in remote locations but must provide payment for product or services. In this process, the company's bank will deliver a payable-through-draft notice to the company. The company will review and approve the draft and return it to the bank who will initiate the fund transfer. The employee may then go to the designated bank to collect the funds. 

With the creation of a draft, funds are removed immediately from the funding account. When a draft is a payable-through, it identifies a bank. This bank is the collection point for the funds to satisfy a bill or contract. Alternatively, drafts can be payable-at, which means they must present at the listed bank for payment. 

The settlement of cash for futures, options, and other securities may use a PTD process. Frequently, these transactions happen at a distance from the parties involved and are for substantial amounts of money. Drafts give protection that money is available. 

Payable Drafts vs. Checks

While a draft may look and function in many ways like a check, there are differences. The draft is a legal record (as a written order) and offers additional security for the transfer of funds between corporations or merchants.

A bank will create the draft on behalf of a business. It will have an automated signature and has a basis of actual credit or money within an account. A draft is immediate and will remove money directly from the account, whereas a check needs to process first through the issuing banks and also through the account holder. 

Types of Payable Drafts

There are many different types of drafts that stipulate the requirements for the transfer of funds.

Bank Draft

A bank draft is an instrument where the issuing bank guarantees payment after reviewing the issuing account for sufficient funds. Obtaining a bank draft requires depositing funds equal to the check amount and applicable fees with the issuing bank. The bank creates a check to the payee drawn on the bank’s account. The check notes the remitter’s name, but the bank appears as the entity making the payment. A bank cashier or officer will sign the check. Because the money is drawn upon and issued by a bank, a bank draft guarantees the availability of the underlying funds. This method of payment is useful when the requirement of secure funds is necessary. 

Treasurer's Draft

A treasurer’s draft is a type of bank draft that is payable through a designated bank. Treasurer's drafts draw funds from the issuer's account. The named bank does not verify either the signature or the endorsement of the check.

Demand Draft

A demand draft is a method used by an individual for making a transfer payment from one bank account to another. Demand drafts differ from standard checks in that they do not require signatures before being cashed. Initially, they were designed to benefit legitimate telemarketers who needed to withdraw funds from customer checking accounts using their bank account numbers and bank routing numbers. 

Share Draft

A share draft is a vehicle used by credit unions as a way to access funds in individual accounts. Share draft accounts at credit unions are the equivalent of personal checking accounts at banks. Likewise, share drafts are the equivalent of bank checks.

Sight Draft

A sight draft is a type of bill of exchange, in which the exporter holds the title to the transported goods until the importer receives and pays for merchandise. 

Foreign Draft

A foreign draft is a bank check converted to foreign currency as an alternative to transferring the foreign currency itself. 

Time Draft

A time draft is a form of short-term credit used for financing transactions of goods in international trade with a bank standing between the two parties.