In the context of banking, particularly concerning drafts and collections, "NP" stands for "No Protest."
Here's a breakdown of what that means:
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What is a Draft? A draft is a written order by one party (the drawer) to another (the drawee) to pay a specified sum to a designated payee. Drafts are commonly used in international trade transactions.
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What is a Protest? A protest is a formal declaration made by a notary public that a draft has been presented for payment or acceptance and was refused. Protesting a draft is a legal procedure used to protect the rights of the holder of the draft in case of non-payment. It provides legal proof of the dishonor and allows the holder to pursue legal action against the drawer and any endorsers.
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"No Protest" (NP) Instruction: When a sending bank (the bank sending the draft for collection) instructs a collecting bank (the bank responsible for presenting the draft for payment) not to protest the item in case of non-payment, it marks the draft with "NP" or "No Protest."
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Implications of "No Protest":
- The collecting bank is instructed not to go through the formal protest process if the draft is not paid.
- The collecting bank will simply return the unpaid draft to the sending bank.
- The sending bank might choose to forgo protest for various reasons, such as minimizing costs associated with protesting, or the drawer's creditworthiness.
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Example: A U.S. exporter sends a draft to a bank in Germany for collection. The exporter, through their U.S. bank, instructs the German bank not to protest the draft if the German importer fails to pay. The U.S. bank stamps "NP" on the draft. If the German importer doesn't pay, the German bank simply returns the draft to the U.S. bank without initiating a formal protest.
In summary, "NP" on a draft means the sending bank is waiving its right to a formal protest in case of non-payment and instructing the collecting bank to simply return the unpaid item.
