Posted in Finance, Accounting and Economics Terms, Total Reads: 429
Definition: Time Draft
A kind of foreign check that the issuing bank guarantees but at the same time, it is not payable in full up to the time when a specified amount is received and accepted. These are a type of short term credit which is used by borrowers to meet financing needs of goods in international markets. The buyer earns a chance to delay payment after receiving exported goods from abroad.
Once the time draft is accepted, it is equivalent to a trade acceptance. This acceptance can be held by the buyer (the exporter) up to maturity and then has to be paid in full. Alternatively, it can also be sold before maturity at a discount if there is an urgency to obtain access to the funds. This time between acceptance of the time draft and its maturity is known as “usance” or “tenor”. As a result, at times Time Drafts are also knows as “Usance drafts”.
Just like the time draft buys opportunity to delay payments for goods bought, in contrast the sight draft is payable as and when presented to a buyer.