Introduction to Finance

Sight and Time Draft s 
As an alternative to shipping merchandise on open-account fi n-
ancing, the exporter may use a collection draft. A 
draft 
or
 bill of exchange
is an unconditional 
written order, signed by the party drawing it, requiring the party to whom it is addressed to pay 
a certain sum of money to order or to bearer. A draft may require immediate payment by the im-
porter upon its presentation—on demand—or it may require only acceptance on the part of the 
importer, providing for payment at a specifi ed future time. An instrument requiring immediate 
payment is classifi ed as a 
sight draft
; one requiring payment later is a 
time draft
. A draft may 
require remittance, or payment, in the currency of the country of the exporter or of the importer, 
depending on the transaction’s terms. An example of a sight draft form is shown in 
Figure 6.3
.
Drafts may be either documentary or clean. A 
documentary draft
 
is accompanied by an 
order bill of lading along with other papers such as insurance receipts, certifi cates of sanita-
tion, and consular invoices. The 
order bill of lading
(see 
Figure 6.4
) represents the written 
acceptance of goods for shipment by a transportation company and the terms under which the 
goods are to be transported to their destination. In addition, the order bill of lading carries title 
draft or bill of exchange 
an 
unconditional order for the payment 
of money from one person to another
sight draft 
draft requiring 
immediate payment
time draft 
draft that is payable 
at a specifi ed future date
documentary draft 
draft that is 
accompanied by an order bill of 
lading and other documents