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Draft


A written order which is signed by one person (drawer) instructing the person to whom it is addressed (drawee) to pay on demand or at a fixed date a specified amount of money to the order of a third party (payee), whether a designated person or the bearer (the person who has possession of the draft at the time it is presented to the drawee for payment). Checks and trade acceptances are special forms of drafts.

For example, when a bank account holder makes out a check on his bank account, a type of draft is actually being written. In foreign transactions, a draft is usually referred to as a bill of exchange. A draft that is prepared without supporting documents is called a clean draft. With documents attached, it is a documentary draft.

A draft that is payable on demand is known as a “sight draft” because the drawee (like a bank) must comply with its terms of payment when it is presented by the payee. In contrast, a “time draft” is one that is payable either on a definite date or at a particular time after sight or demand.

A draft is generally synonymous with a bill of exchange, a commercial paper, or a negotiable instrument.



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