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LSDefine
Simple English definitions for legal terms
letter of exchange
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A quick definition of letter of exchange:
A letter of exchange is a written order that tells someone to pay a certain amount of money to another person or to a group of people. It's like a check, but it can be used in different countries. There are different types of letters of exchange, like a demand draft that needs to be paid right away, or a time draft that can be paid later. Sometimes, a letter of exchange is used to pay for things that are being shipped, and it's called a documentary draft. In some countries, people are required to join the military, and this is called a draft. To draft something also means to write or create it, or to choose someone for a job or position.A more thorough explanation:
A letter of exchange is a written order signed by one person, called the drawer, directing another person, called the drawee or payor, to pay a certain amount of money to a third person, called the payee, on demand or at a specific time. It is also known as a bill of exchange or draft.
For example, if a company in the United States sells goods to a company in Japan, the seller may use a letter of exchange to request payment from the buyer. The seller would be the drawer, the buyer would be the drawee, and the seller's bank or the seller themselves would be the payee.
There are different types of drafts, such as:
- Sight draft: payable on demand or proper presentment to the drawer
- Time draft: contains a specified payment date
- Foreign draft: drawn in one country or state but payable in another
- Inland draft: drawn and payable in the same state or country
Overall, a letter of exchange is a legal document used in international trade to ensure payment for goods or services.