A time draft is a written directive instructing someone to make a payment of a specified amount on a particular date. It functions similarly to a check, but with a predetermined deadline. Various types of drafts exist, such as demand drafts that can be immediately paid or foreign drafts that are settled in a different country. Additionally, drafts can be utilised in military enlistment, drafting documents, or selecting individuals for employment.
A time draft is a written order signed by one person, known as the drawer, instructing another person, referred to as the drawee or payor, to pay a specific amount of money on a designated date to a third person, known as the payee, or to the bearer. For instance, if a company in the United States sells goods to a company in Japan, they may send a time draft to the Japanese company’s bank. This time draft would direct the bank to pay the specified amount on a specific date to either the U.S. company or the bearer of the draft. This example demonstrates how a time draft is utilised in international trade to ensure payment at a later date. Other types of drafts include sight drafts, which are payable upon demand or proper presentation to the drawer, documentary drafts, which require the presentation of a document such as a document of title, invoice, certificate, or notice of default, foreign drafts, which are drawn in one country or state but payable in another, and inland drafts, which are drawn and payable within the same state or country. It is important to note that a check is the most common example of a draft.
A time draft is a type of financial instrument that is used in international trade transactions. It is a written order from the exporter to the importer, instructing the importer to pay a specified amount of money at a future date.
When the exporter presents the time draft to the importer, the importer accepts the draft by signing it, thereby acknowledging their obligation to pay the specified amount on the agreed-upon future date. The exporter can then use the accepted time draft as collateral to obtain financing from a bank.
A time draft differs from a sight draft in terms of payment timing. While a sight draft requires immediate payment upon presentation, a time draft allows for deferred payment, typically after a certain number of days or months.
Yes, time drafts are legally binding documents. Once the importer accepts the time draft, they are obligated to make the payment on the specified future date. Failure to do so can result in legal consequences.
Yes, a time draft can be negotiated or transferred to a third party, typically through endorsement. This allows the exporter to assign their rights to receive payment to another party, such as a bank or a factor.
If the importer fails to make the payment on the due date specified in the time draft, the exporter can take legal action to enforce payment. This may involve filing a lawsuit or seeking arbitration, depending on the terms agreed upon in the contract.
Once the importer has accepted the time draft, it cannot be canceled or modified without the consent of all parties involved. Any changes to the terms of the time draft would require a new agreement between the exporter and the importer.
If the exporter needs immediate payment before the due date specified in the time draft, they can approach a bank or a financial institution to discount the draft. The bank will provide the exporter with the discounted amount, deducting their fees and interest.
Using time drafts in international trade transactions carries certain risks. The exporter may face the risk of non-payment if the importer defaults or becomes insolvent. It is important to assess the creditworthiness of the importer and consider using additional risk mitigation tools, such as letters of credit or export credit insurance.
While time drafts are commonly used in international trade, they can also be used in domestic trade transactions. The key principle remains the same the time draft serves as a written order for deferred payment, allowing the exporter to obtain financing or secure payment from the importer.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
- Page URL:https://dlssolicitors.com/define/time-draft/
- Modern Language Association (MLA):Time Draft. dlssolicitors.com. DLS Solicitors. May 09 2024 https://dlssolicitors.com/define/time-draft/.
- Chicago Manual of Style (CMS):Time Draft. dlssolicitors.com. DLS Solicitors. https://dlssolicitors.com/define/time-draft/ (accessed: May 09 2024).
- American Psychological Association (APA):Time Draft. dlssolicitors.com. Retrieved May 09 2024, from dlssolicitors.com website: https://dlssolicitors.com/define/time-draft/
Our team of professionals are based in Alderley Edge, Cheshire. We offer clear, specialist legal advice in all matters relating to Family Law, Wills, Trusts, Probate, Lasting Power of Attorney and Court of Protection.
All author posts