What Is a Bank Endorsement?

A bank endorsement is a document that affirms the bank will honor any obligation that the bank customer makes in regard to a transaction involving a payment issued to a recipient. An endorsement may be structured in more than one form, with a banker’s acceptance and a time draft being the two most common. The purpose of this type of document is to provide the recipient of the payment, usually referred to as the counterparty, with some type of assurance that payment will be tendered for the goods or services that the bank customer is buying.

Bank endorsements are often utilized when the buyer and seller do not have a past working relationship. Since the issuing bank is providing assurance that the amount named in the document will be tendered to the seller, this helps to reduce the risk that is taken on by dealing with a new and relatively unknown buyer. While this approach may be used in some domestic situations, a bank endorsement is more often used when goods or services are being purchased from an international seller. As a result, the two parties have the opportunity to work together in completing the order as quickly as possible, without any worries concerning when and if payment will be received for the shipped goods.

When the bank endorsement is structured as a banker’s acceptance, it is often considered on a par with a bank guarantee. This is because the issuing institution is declaring to the receiving institution that the payment amount named in the document will be delivered in accordance with the terms and conditions agreed upon by the seller. By using this process, the seller can feel free to ship the order and have full confidence that the order will be paid for in a timely manner. The buyer in turn knows that the funds will be deducted from his or her account or line of credit according to the terms agreed upon, and does not have to be concerned about arranging payment at a later date.

Another kind of bank endorsement is the stamp that is placed by the receiving bank on the back of the check. The stamp indicates that the receiving bank has accepted and processed the check for payment by the issuing bank. In this application, the bank endorsement stamp on the back of the checks help to create a document trail between the time the check is deposited into a bank account and when that check clears the issuer’s bank account that can be followed should any issue regarding payment and proper posting of check amount occur at a later time.