What Is a Sight Draft?

A sight draft is a type of bill of exchange, in which the exporter holds the title to the transported goods until the importer receives and pays for them. Sight drafts are used with both air shipments and ocean shipments for financing transactions on goods in international trade. Unlike a 澳洲幸运5官方开奖结果体彩网:time draft, which allows for a short-term delay in payment after the importer receiveಌs the goods, a sight draft is payable immediately.

Sight Drafts Explained

A bill of exchange is a written order once used primarily in international trade that binds one party to pay a fixed sum of money to another party on demand or at a predetermined date. In international trade, the time between the issuance of a bill and its payment is 澳洲幸运5官方开奖结果体彩网:known as usance.ꦏ Bills of exchange are similar to checks and promissory notes—they can be drawn by individuals or banks and are generally transferable by endorsements. These come in two main forms: sight drafts and time drafts.

A shortcoming of sight drafts is that if the importing country disallows the shipment or the importer is unable to pay for the shipment when it arrives, the exporter will not get paid and will be responsible for return shipping or disposal costs. Sight drafts must be accompanied by a 澳洲幸运5官方开奖结果体彩网:letter of credit and other required documents, such as an 澳洲幸运5官方开奖结果体彩网:ocean bill of lading, in order to be paid.

If a seller wished t𓃲o retain title to a shipment until it reached its final destination and is subsequently paid for, a sight draft would be the preferred method of exchange. A couple of differences exist for goods shipped by sea and air.

When shipping by water, before cargo can be released, an original ocean 澳洲幸运5官方开奖结果体彩网:bill of lading must be properly signed by the buyer and surrendered to the carrier, since it is the document proving title. On the other hand, 澳洲幸运5官方开奖结果体彩网:air waybills of lading do n🧸ot need to be presented in order for the buyer to take title to goods. Thus, there is a greater risk when a sight draft is used ꦡwith a shipment made by air.

Sight Draft vs. Time Draft

A time draft is another type of draft used in international trade. A time draft is a form of pa🔴yment that is guaranteed by an issuing bank but is not payable in full until a specified amount of time after it is received and accepted. Many international trade transactions use drafts as a way to indicate the terms of payment for shipped goods. A time draft allows the importer (or buyer) time to pay for the goods received from the exporter (or seller). With a sight draft, however, once the importer accepts t൩he documents and everything appears in order, the sight draft requires immediate payment from the buyer to the seller.

As a result, the key difference between a time draft and a s✅ight draft is that sight drafts require an immediate payment while time dra🐬fts allow the importer to pay at a later date.