Future Business Leaders of America (FBLA) Business Law Practice Exam

What is the order given to a third party to pay money known as?

1. Draft

2. Cheque

3. Invoice

4. Payment order

The correct answer is: Draft

The correct term for an order given to a third party to pay money is "draft." A draft is a written order to pay a specific sum of money at a designated time to a specified person or entity, typically involving a bank or financial institution in the transaction. It serves as a negotiable instrument that can be transferred from one party to another, allowing funds to be drawn from one account to another without the physical handling of cash. Options such as a cheque and a payment order can also involve the act of directing funds, but they have distinct definitions and uses in financial transactions. A cheque, for example, is a specific type of draft that is drawn against a bank account, while a payment order generally refers to any instruction given to make a payment, but not necessarily in the formalized way a draft represents. An invoice, on the other hand, is a document that itemizes and records a transaction between a buyer and a seller and does not serve as an instruction to pay but rather requests payment for goods or services rendered.