Sight Draft Definition

Sight Draft is the financial instrument that is payable when it is presented, similar to the cheque.

It’s the most preferred form of payment in international trade. The exporter may not know the importer and his credentials in most of the cases during international trade.

Hence, he can not like to bear the credit risk. And sight drafts are very useful in facilitating overseas trade.

And the exporter would retain full ownership rights and title to the goods until full realization of the payment.

What is the Usage of Sight Draft?

  • The exporter generally sends the sight draft along with other documents about the consignment to the importer.
  • The exporter may like to be utterly sure about rates and quantity, shipping instructions, documents for customs compliance and clearances, etc.
  • Hence, the exporter prepares all the above documents and sends the sight draft and those documents to the importer.
  • And it can provide the opportunity for both parties to review the terms and conditions of their contract.
  • If there is any difference in any of the above clauses, the importer can immediately object, and those documents can be modified accordingly.
  • Hence, reconciliations are possible before the actual shipment of goods. If such a situation arises, it can time and money-saving for both the exporter and the importer.
  • Otherwise, bring back the products once shipped from another country can very tedious and expensive affair.

What is the Payment of Sight Draft?

  • Technically it must pay when presented for payment. But it’s usually not the case.
  • And the bank with whom the sight draft is presented may take a few working days to check the authenticity.
  • And the validity of all the documents presented along with the sight draft.
  • The letter of credit and bill of lading are to be presented along with the sight draft.
  • The bank takes to ensure that the actual transaction has taken place. And the seller takes shipped the goods as per the terms and conditions agreed.
  • And the bank motivation only checks if the exporter has sent the consignment and not.
  • It cannot hold liable for what has to remain shipped in the consignment, as it has no way of knowing that.
  • The bank informs the exporter of finding any error and discrepancy.
  • After the clearance of the issue, payment is processed. If the bank finds everything to be genuine and the exporter will receive the compensation within 2-3 working days.

Also Read: What is the Negotiable Certificate of Deposit (NCD)? – Understanding, Advantages, and More