Legal Definitions - S/D B/L

S/D B/L stands for Sight Draft with Bill of Lading.

This term describes a specific payment and document exchange arrangement commonly used in commercial transactions, particularly in international trade, to ensure that a seller receives payment for goods before the buyer can take possession of them.

• A sight draft is a type of payment instruction that demands immediate payment upon its presentation to the person or entity ordered to pay (the drawee), typically the buyer or their bank.
• A bill of lading is a crucial document issued by a carrier (such as a shipping company) to a shipper. It serves multiple purposes: it's a receipt for the goods, a contract for their transportation, and most importantly, a document of title. Whoever holds the original bill of lading generally has the right to claim the goods from the carrier.

When a transaction is structured as an S/D B/L, the seller ships the goods but retains control of the bill of lading. This bill of lading, along with the sight draft for the purchase price, is then sent through banks to the buyer's location. The buyer's bank will only release the bill of lading to the buyer once the buyer has paid the sight draft in full. Without the bill of lading, the buyer cannot legally claim the goods from the shipping company at the destination port, thereby guaranteeing the seller receives payment before the buyer gains control of the merchandise.

Examples:

• International Furniture Shipment: A furniture manufacturer in Italy sells a large order of custom-designed chairs to a retail chain in Canada. To ensure payment, the Italian manufacturer arranges for an S/D B/L. Once the chairs are loaded onto a cargo ship, the shipping company issues a bill of lading to the manufacturer. The manufacturer then sends this bill of lading, along with a sight draft for the total purchase amount, to the Canadian retail chain's bank. The Canadian bank will only release the bill of lading to the retail chain after the chain pays the sight draft. Without the bill of lading, the retail chain cannot clear the chairs through customs or pick them up from the port, guaranteeing the manufacturer gets paid upon the draft's presentation.

• Commodity Trade (Coffee Beans): A coffee exporter in Colombia sells several containers of green coffee beans to a roasting company in Germany. To mitigate the risk of non-payment, the exporter uses an S/D B/L. After the coffee beans are loaded onto a vessel, the shipping line provides the exporter with a bill of lading. The exporter's bank then forwards this bill of lading and a sight draft to the German roasting company's bank. The German company must pay the sight draft immediately upon its presentation to their bank. Only after this payment is made will the German company receive the bill of lading, which they need to claim the coffee beans once they arrive at the port in Hamburg.

• High-Value Industrial Equipment: A Japanese company manufactures specialized robotics and sells a complex assembly line to an automotive factory in Mexico. Given the high value and custom nature of the equipment, the Japanese seller insists on an S/D B/L. When the machinery is packed and shipped, the carrier issues a bill of lading. This document, along with a sight draft for the total cost, is sent to the Mexican factory's bank. The Mexican factory must pay the sight draft immediately to their bank. Once payment is confirmed, the bank releases the bill of lading to the factory, allowing them to take possession of the machinery upon its arrival in Mexico. This mechanism protects the Japanese seller by ensuring payment before the valuable goods are released to the buyer.