Documentary Draft Transaction

A Documentary Draft Transaction involves presenting a draft with the required shipping documents to secure payment.

This process includes several key elements: the draft, shipping documents, and payment. Significant components of shipping documents include the bill of lading, commercial invoice, and insurance certificate.

In banking, the draft serves as a written order for payment. The seller presents the draft to the buyer’s bank. Shipping documents support the transaction by providing proof of shipment and ownership.

Two primary forms of drafts exist: sight drafts and time drafts. Sight drafts demand immediate payment upon presentation, while time drafts allow payment at a future date.

An export transaction offers an example. Here, the exporter sends goods to the importer, then presents the draft and shipping documents to the bank to obtain payment.

Documentary Draft Transactions ensure secure and structured international trading by linking payment to the proper documentation. They minimize risk by guaranteeing that sellers receive payment upon fulfilling their shipment obligations.