Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Bank Endorsement

What it is:

A bank endorsement is an assurance that it will stand behind a check or other negotiable instrument that one of its customers creates.

How it works (Example):

Let's say you want to buy 1,000 cars from a Canadian wholesaler on the Internet. You are in the United States. You agree on a price and plan to pay via check. The seller wants you to get a bank endorsement, which assures him that he will get his money even if you don' t have enough in your checking account.

Bankers' acceptances and time drafts are two types of bank endorsements. Similar to bank guarantees, the bank issuing John Doe's check declares (for a fee) that the payment will be delivered in accordance with the terms and conditions agreed upon by the seller.

In some cases, the receiving bank will place a stamp on the back of the check, indicating that it has received and processed the payment. This creates a paper trail.

Why it Matters:

Bank endorsements are common in international trade when the two parties don't know each other well. They ensure that a seller will be paid in accordance with an agreement, which can help buyers stand out from other buyers and act quickly.