Documentary draft

Accompanying Documentary Draft

Introduction

A document promising to pay a certain amount to the order of the bearer is known as a draft, and when it is drawn by a buyer on a seller to pay the purchase price of goods, it is usually known as an accompanying documentary draft. An accompanying documentary draft is used when goods are purchased and goods are exported and shipped before the payment is made. This document may be used when goods are to be shipped to the buyer by common carrier, courier service or by private means.

Definition

An accompanying documentary draft is a legal document that obligates the payor to pay a specified sum of money to the order of the purchaser/bearer/payee of the draft, when the specified goods or services have been delivered.

It should include the terms of the agreement, the description of the goods, the details of the purchasing party and the details of the selling party.

Widely Used in International Trade

Accompanying documentary drafts are widely used in international trade. This eliminates the risk of non-payment, since the funding source is independently verified by the third party.

The most important advantage of using an accompanying documentary draft is that an import letter of credit (LC) is not required, giving the buyer and seller an additional measure of flexibility in making a transaction. It is an excellent instrument for financing smaller as well as larger transactions.

It also serves as a basis for trade finance with the ability to grant both payment assurance and risk control. An accompanying documentary draft can represent a stand-alone financing instrument or be part of a larger international trade transaction.

When the seller ships the goods, they go through customs into the country of the buyer, at which point they are released by the customs officials and sent to the buyer, who then inspects and accepts the goods before paying the bill of exchange.

Special Terms on the Bill of Exchange

Typically, special terms on the bill of exchange state that, upon the delivery of the goods, the buyer is obliged to accept and pay the amount specified in the draft, making the accompanying documentary draft fully payable at sight.

Some Tips for Negotiation

When negotiating a purchase contract that involves an accompanying documentary draft, the seller should ensure that all the terms and conditions of supply are clearly specified in the contract, including the description of the goods and services, delivery period, payment terms, and shipping and export/import procedures.

The buyer should verify the authenticity of the accompanying documents before accepting and paying the draft. Payment should be in accordance with the terms and conditions agreed upon in the purchase contract, and the process should be agreed upon in advance by both parties.

Conclusion

Accompanying documentary drafts are widely used instruments in international trade. They offer financing, payment assurance and risk control, while allowing the buyer and seller to remain flexible and independent.

By carefully negotiating the purchase contract and verifying the authenticity of the accompanying documents, both parties can ensure a successful and mutually beneficial transaction.

Followed Bill of Exchange

A followed bill of exchange is a type of promissory note or draft in which the seller of a goods transfers the rights in that bill to another person by following the order of the seller. The seller is typically known as the the drawer, and the person receiving the rights is the drawee.

This type of bill of exchange is created when a purchaser requests the seller to draw a Bill of Exchange. In other words, the purchaser instructs the seller to draw such a bill and transfer the rights in the bill of exchange to some other person to whom the purchaser owes money. The seller, who represents the purchasers interests, creates the bill and follows the instructions, transferring the rights to the drawee.

The drawee is usually a third party, such as a bank, who is instructed by the seller to accept payments from the purchaser on behalf of the person to whom the rights were transferred. When the drawee receives payment on the bill, the rights in the bill are transferred back to the seller, who then transfers the funds to the original buyer.

The advantage of a followed bill of exchange for the seller is that the seller does not have to worry about collecting payment from the buyer. Instead, the drawee is responsible for collecting payment from the purchaser, meaning that the seller gets paid even if the purchaser does not or cannot pay.

In some cases, drawees may require a deposit from the buyer to ensure payment. The drawee may also require a guarantee from the seller in order to guarantee payment of the debt. In the event that payment is not made by the purchaser, the guarantee would be honored by the drawee in lieu of payment.

Overall, the benefit of using a followed bill of exchange is that the seller is more protected from risk and can be sure that they will receive payment even if the purchaser cannot or will not pay. It also makes it easier for the seller to transfer rights to a third party and ensures that the seller gets paid in full.