Understanding Accounts Receivable Drafts

Drafts are payment instruments that enable direct communication between the bank of the payor and the bank of the payee. In most countries, a draft is a promise to pay a debt. The use of a draft for payment of obligations affects the legal nature of the underlying liabilities. Therefore, you must classify, track, and report drafts separately from other types of payments and obligations. Many areas of the world use draft processing, although the payment instrument might be referred to as something other than a draft. For example, in Asia Pacific, the draft process is commonly used for post-dated checks. In the United States, it is used for credit card payments.

You, as the supplier, or the customer can originate a draft. Regardless of who originates it, you must enter the draft into the system (a process which is also known as draft acceptance), remit it for collection, and then record the collection. Drafts can also be discounted and might have a contingent liability.

See also:

• "Understanding Accounts Receivable Draft Processing in Spain" in the JD Edwards EnterpriseOne Applications Localizations for Spain Implementation Guide.

• "Setting Up Draft Remittance Formats for Italy" in the JD Edwards EnterpriseOne Applications Localizations for Italy Implementation Guide.

• "Understanding Accounts Receivable Draft Processing in Japan" in the JD Edwards EnterpriseOne Applications Localizations for Japan Implementation Guide.