Legal Definitions - redraft

A redraft refers to a new financial instruction, similar to a check or a formal promise to pay, that is issued by the original payer (the "drawer"). This new instruction is created specifically because an earlier, similar payment instruction failed to be honored (meaning it was refused payment, perhaps due to an error or insufficient funds). It's essentially a replacement payment instrument designed to rectify a previously unsuccessful payment attempt.

Here are some examples to illustrate this concept:

• International Trade Payment:

  Imagine a company in the United States (the importer) orders a large shipment of specialized machinery from a manufacturer in Germany. To pay for the goods, the U.S. company issues a "bill of exchange" (a type of negotiable instrument) instructing its bank to pay the German manufacturer upon presentation of the shipping documents. When the German manufacturer's bank presents this bill of exchange for payment, it is dishonored by the U.S. company's bank, perhaps due to a minor discrepancy in the documentation or a temporary hold on the specific account designated for the payment. To avoid delays in receiving the machinery and to maintain good business relations, the U.S. company (the drawer) immediately issues a new bill of exchange, correcting the previous error, which is then presented for payment. This new bill of exchange is the redraft.

• Business Loan Repayment:

  Consider a small business owner who secures a loan from a local bank. As part of the loan agreement, the owner provides a "promissory note" (a negotiable instrument) detailing the repayment schedule and promising to pay a specific amount on a specific date. On the due date, the bank attempts to collect the payment as per the promissory note, but the note is dishonored because the business's account has insufficient funds or a technical processing issue prevents the payment. To prevent defaulting on the loan and incurring further penalties, the business owner (the drawer) promptly issues a new promissory note, perhaps with an adjusted payment date agreed upon with the bank, or correcting a previous error. This replacement promissory note is the redraft.