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Bills, drafts, bill of exchange, negotiable instruments, sight drafts, term drafts, clean drafts, documentary drafts, documentary collections, letters of credit, LC. avalised term drafts, banker's acceptance, trade acceptance, drawer, drawee, remitting banks, nominated banks, collecting banks, presenting banks. letters of credit amendments, transferable letter of credit, latest negotiation date, transport documents, L/C expiry date, draft, ports of origin, ports of destination, latest shipment, latest date of shipment, last date for shipment, transhipment, transshipment, partial shipments. exportation, importation, export, import, service exporters, export trader, export trade portal, export trading, exporters association, export manufacturer, export marketing, exporters guides. export directory, manufacturing exporters, Taiwan exporters, Taiwan importers, Hong Kong exporters, Hong Kong importers, trade shows, trade fairs. China exporters, China importers, export manufacturing, export consulting, export trade leads, import trade leads, international business, trade exhibitions. letter of credit, insurance, trader, trading, exportacion, importacion, internet advertising, online advertisement, e-commerce, electronic commerce. logistics, transportation, transports, cargo insurance, ocean shipping company, courier, airline, customs broker.
Bills of Exchange (Drafts)
The bill of exchange, commonly referred to as the draft or the bill, is an unconditional order in writing, signed and addressed by the drawer (the exporter usually) to the drawee (the confirming bank or the issuing bank usually), requiring the drawee to pay the drawer a certain sum of money at sight or at a fixed or determinable future time.
The draft is widely used in international trade, most frequently in the payment against a letter of credit (L/C). It is also used in the open account without any L/C involved.
- The Letters of Undertaking Instead of the Drafts
- In certain exporting countries, the government levy a heavy tax on drafts. In such a circumstance, the exporter may request the importer to specify in his/her letter of credit (L/C) application that "No drafts be issued". When the documents are presented to the negotiating bank, the bank issues a letter of undertaking indicating when and where the money will be paid, instead of accepting a draft drawn by the exporter.
- 'Avalised' Term Drafts
- The word "aval" in French means endorsement. A term draft accepted by the importer does not guarantee payment on maturity, hence it is not readily accepted for discounting or as collateral in a loan. The exporter may arrange to have the accepted draft to be 'avalised' by the importer's
bank--- the bank adds its endorsement as guarantee of payment. The 'avalised' term draft can be readily discounted, thus providing the exporter with immediate funds.
Sight Drafts versus Term Drafts
The usual way the drawee accepts a draft is by writing or stamping the word "ACCEPTED" on the face of the draft, plus the drawee's authorized signature and the date accepted.
Unless the importer's integrity is irrefutable, using a term draft is risky, especially when the draft is drawn on the importer where the remitting bank and the collecting bank are merely acting as agents without guarantee of payment.
In certain countries, the importer may have access to the customs warehouse or docks and examine the goods before accepting them. The risk is that the importer may intentionally reject the goods even when they are in good order and condition, without paying or accepting the draft. The importer may reject the goods, for example, if the local market prices of the goods have dropped. Unless the goods are shipped back or rerouted to other buyers, the goods may incur warehousing charges and be subject to foreclosure after a period of time and auctioned off by the customs. The importer, not surprisingly, could be one of the bidders at the auction and obtain the abandoned goods at a fraction of the import cost. A remedy to counter such rejection is to send the draft and documents immediately to the remitting bank, so that the remitting bank may relay them to the collecting bank and the collecting bank presents them to the importer for payment or acceptance before the goods arrive at the destination.
The importer, however, has the right to reject goods that deviate from the contracted specifications and quality. The importer can instruct the collecting bank not to pay the draft.
Clean Drafts versus Documentary Drafts
in the Documentary Collections
- Clean Draft
- In a clean draft, no shipping documents are attached to the draft sent to the remitting bank. The documents are sent together with the goods, directly to the buyer. Therefore, unless the credibility of the buyer is unquestionable, using a clean draft in the shipment of goods is risky. The clean draft is more often drawn for the collection of payment for the services, not goods.
- Documentary Draft
- In a documentary draft, the shipping documents are attached to the draft sent to the remitting bank. The buyer will be able to receive the shipping documents from the collecting bank only after he/she has accepted the draft for payment later or after he/she has paid the draft.
The Parties in the Collection of Drafts
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