It is a document that demonstrates that a person/company has the the facility required to participate in a transaction. It is often used at the beginning of negotiations between parties who are unfamiliar with each other, so that each side can demonstrate seriousness to the other side.
How does it work?
By issuing a proof of funds, the bank approves that the entity/person has the quoted funds or facilities available with them. During the finalization of a transaction, the applicant presents the POF to the beneficiary, assuring them that the buyer has the wherewith all to participate the transaction.
It should be noted that proof of facilities are being sometimes used by con artists to carry out financial scams. Thus, when agreeing to be presented with a proof of facility, it is necessary to thoroughly investigate the other party to the transaction and perform sufficient due diligence checks.