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.