Legal Definitions - negotiable order of withdrawal

A Negotiable Order of Withdrawal (NOW) is a type of financial instrument, very similar to a personal check, that allows an account holder to instruct their bank or financial institution to pay a specific amount of money to another person or entity. It is "negotiable" because it can be transferred from one party to another, and it is "payable on demand," meaning the recipient can typically access the funds immediately upon presentation to the bank. These orders are drawn against funds held in a special type of interest-bearing checking account, often referred to as a NOW account.

• Example 1: Paying a Utility Bill

  Maria writes a NOW order from her interest-bearing checking account to her electricity provider for her monthly utility bill. The electricity company receives the order and processes it through their bank, receiving the funds shortly thereafter.

  This illustrates a Negotiable Order of Withdrawal because Maria is issuing a written instruction (the "order") to her bank to pay the electricity provider. It is "negotiable" as the company can deposit or cash it, and it is "payable on demand" because the company can access the funds quickly once processed. The payment is drawn directly from the funds Maria has "deposited" in her NOW account.

• Example 2: Small Business Payment to a Contractor

  A freelance marketing consultant, operating as a sole proprietor, uses a NOW account for business expenses. When paying a graphic designer for logo work, the consultant issues a NOW order for the agreed fee. The graphic designer then deposits this order into their own business bank account.

  Here, the consultant's NOW order functions as a payment instruction to their bank. It is "negotiable" because the graphic designer can accept it as payment and transfer it to their bank for processing. The funds are "payable on demand" to the designer and are drawn from the "deposited" money the consultant holds in their business NOW account.

• Example 3: Contributing to a Community Fund

  Mr. Chen decides to contribute to a local community development fund. He writes a NOW order from his personal NOW account, specifying the community fund as the payee. The fund's administrator deposits the order into the fund's operational account.

  This demonstrates a Negotiable Order of Withdrawal as Mr. Chen is directing his bank to release funds from his account to the community fund. The order is "negotiable" because the fund can process it through their bank, and the funds become "payable on demand" to them. The payment is made "against funds deposited" by Mr. Chen in his interest-bearing NOW account.