What is a Negotiable or Monetary Instrument?
What is an instrument?
A negotiable instrument, or monetary instrument, is a document that evidences the ownership of a monetary value. These values can be anything from cash to coins to banknotes and checks.
In what circumstances would this apply?
One good example of when this would come into account is if you are signing up for a merchant account with a bank. The bank will provide you with information about the various types of instruments they accept as deposits, typically in order to open an online store or purchasing goods on auction sites like eBay. You should also know that there are many types of currency international instruments, so always double check before sending any type of money across borders.
It should be noted that this article is about US law .
From the section of title 9 called 'Checks, collection and deposit of funds' we know that "§ 24.9 – What is a check?
(A) A check, draft, order, or similar instrument which may be presented by the drawee to the drawer for payment and upon which drawers may draw.
(B) The term "drawer" includes all persons to whom a negotiable instrument may be payable and includes any agent of either of them.
Many people fail to understand that checks can be found in any form from cash (US$20) to money orders (US$500). These instruments are used for paying bills and transferring money between accounts. It is vital to be able to manage and pay the right types of instruments to the right people.
"§ 25.3 – What are the rights, privileges, liabilities, and obligations of a holder in due course? A holder in due course is one who has taken a negotiable instrument free of any defense or claim by reason of any fraud or irregularity in the instrument."
Suppose you purchase an item from a person who does not pay the seller. This can cause problems when trying to collect money from that person as he/she does not hold up his/her end of the transaction (receipt). If you are able to collect funds from the seller by selling the item yourself and getting a cashier's check or money order. You may then be a holder in due course.
"§ 3103 – What is an instrument?
(1) "Instrument" means a negotiable instrument or any other writing which evidences a right to the payment of money and is not a security agreement, lease, or contract of employment.
(2) The term includes—
(A) cash, checks, deposit accounts, letters of credit, bills of lading, warehouse receipts.
"(B) any electronic or similar medium that is used to create merchandise return authorizations and is not redeemable in cash."
(3) The term does not include an instrument that is declared to be a security agreement pursuant to section 9-106.
(4) The term also includes any other writing which permits the person in possession of it to create interest or discount rights which may be transferred by delivery alone (including book entries as defined in this article), but the term does not include a certificate of deposit.
(5) A writing that is both an instrument and security agreement, lease or contract of employment is an "instrument" for purposes of sections 9-313, 9-315, 9-316 and 9-317.
The seller of a check or money order is the drawer. The person to whom the check or money order is made payable are the drawee.
If you are planning to open a merchant account in order to accept payments online you will be asked if your business accepts checks, money orders and cash as they fall into these categories. In some states credit cards may not be accepted at all so it is essential to know exactly what types of instruments your business will be accepting payments through.
"§ 3103-1 – What are the rights, privileges, liabilities and obligations of a holder in due course? A holder in due course is one who has taken a negotiable instrument free of any defense or claim by reason of any fraud or irregularity in the instrument."
Checks are the most popular form for businesses to accept payments through. There are several benefits to accepting checks such as reducing your spend on check processing and significantly lowering your risk if someone is fraudulent when trying to collect on a check. Also, if you use checks you have far less paperwork associated with payments and often get paid much faster than if you were to be paid by other methods.
It is also an accepted practice to use checks and money orders both for receiving and sending monies. Even if you do not send and receive payments through a checking account, there are still many businesses that simply need to know if the individual in possession of their check is going to be a holder in due course or not. It is essential for them to verify this information in order to seek reimbursement from the sender at a later time or when they become a holder in due course themselves.
This is often where they sign the check (or present it as evidence of payment) for goods or services paid for by person(s). They should also have the right to collect interest on any checks held until final payment has been received.
Checks can be verified to be a holder in due course by using the information found on the bottom of the check. This box is normally located at either right side or bottom right hand corner. It will contain a variety of codes and numbers that indicate whether or not the person is a holder in due course. These codes will be different depending on whether it is US or international and if it has been sent through an ACH Network, Wire Network or Check Network. If you do not know whether your person is a holder in due course then you should contact your financial institution and inquire about it. You will have to allow them a reasonable period of time to look into this information for you as it can take some time.
On the Internet, there are three types of currency based on how they are processed:
In order to accept and process checks and money orders through the internet, one must first set up an account with their bank. Online merchant banking accounts can be established in any country but will vary greatly depending on what type of business you want to do online. You may need a license and tax number, depending on the country in which you live. This will be different for each person as each country has different rules and regulations that apply specifically to online businesses which accept payments through checks and/or money orders.
Conclusion on checks:
Checks are the most popular type of instrument to accept payments through. There are many benefits to accepting checks such as the fact that the payer is acting as a holder in due course which gives you ample time to collect payment from them. Another benefit of accepting checks is that they can be sent through an ACH Network, Wire Network or Check Network. This means that you can receive funds immediately and reduce your risk if someone is fraudulent when trying to collect on a check.
Money orders are often used for paying rent, purchasing airline tickets, paying taxes and employee wages.