Time Draft

A “time draft” is pretty much a delayed payment that’s guaranteed by a financial institution. It’s used mostly in the international trade arena, and the gist of it is that we don’t have to pay for goods we import the instant we receive them. This is beneficial because it can lower the risk level of doing business with potentially unknown foreign entities; we have a chance to receive our order and make sure it’s good to go before we pay for it.

For example, let’s say our company, Chihuahuanderful, makes high-end clothing for small dogs. We’ve decided to introduce a sleepwear line, and we want to import some French silk to make fine puppy pajamas. We find a supplier who’ll sell us what we need at a fair price, but we’re a little wary since we’ve never done business with them before.

Enter the time draft. We go to the bank and apply for a banker’s acceptance, which basically guarantees payment to the French silk place on the bank’s credit. Then the company ships us the silk, and the bank ships them the acceptance, which they can either cash immediately or hold onto until it matures. 30 days later (it’s not always 30 days, FYI), our post-dated payment to the bank for the acceptance is taken out of our account. This gives us time to look over the silk and make sure it’s up to snuff before we shell out beaucoup bucks to some company we don’t know, and it gives the exporter some peace of mind as well, since they know they’re going to get paid.