Presentment: Overview, definition, and example
What is presentment?
Presentment refers to the formal act of presenting a financial instrument, such as a check, promissory note, or bill of exchange, to the party obligated to pay it, or to the relevant financial institution for payment or acceptance. In the context of legal and business transactions, presentment is the process by which a party submits a document or instrument to the appropriate person or organization to request payment, approval, or action. Presentment is a key step in the process of settling financial obligations and can be an important part of contracts, banking, and commercial law.
For example, when a person presents a check to a bank for payment, the bank performs the act of presentment by processing the check to ensure the funds are available and then transferring the amount to the payee.
Why is presentment important?
Presentment is important because it serves as the official request for payment or action, ensuring that both parties are aware of the financial obligation. In the case of a promissory note or check, presentment triggers the payer’s responsibility to fulfill the debt. It also provides a formal record of the transaction and establishes the timeline for payment. Presentment plays a critical role in ensuring that legal and financial transactions are properly processed and documented.
In business and legal contexts, presentment can help clarify responsibilities, prevent misunderstandings, and ensure that payments are made in accordance with agreed-upon terms.
Understanding presentment through an example
Imagine a supplier delivers goods to a business and issues an invoice for payment. The business is required to present the invoice to its accounts payable department for approval and processing. This formal submission of the invoice to request payment is a form of presentment.
In another example, if an individual receives a check as payment, they must present the check to their bank for deposit or cashing. The bank will verify that the check is valid and that sufficient funds are available in the payer's account before processing the payment. This act of presenting the check to the bank is known as presentment.
An example of a presentment clause
Here’s how a presentment clause might appear in a contract:
"The Seller agrees to present the invoice for payment to the Buyer within 30 days of delivery. The Buyer shall remit payment within 15 days of presentment, failing which interest shall accrue on the unpaid amount as specified in Section 5."
Conclusion
Presentment is the formal act of submitting a financial document or instrument for payment or approval, ensuring that financial obligations are acknowledged and addressed. It is a key element in business transactions, banking, and legal agreements. By understanding the role of presentment, businesses can better manage their payment processes, ensure compliance with contractual terms, and reduce the risk of disputes related to payments or approvals.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.