Legal Definitions - sight draft

A sight draft is a type of financial instrument, similar to a check, that orders one party to pay a specific amount of money to another party immediately upon its presentation. The term "at sight" means that payment is due as soon as the draft is seen or presented to the party obligated to pay, without any waiting period or future payment date.

It is commonly used in commercial transactions, especially in international trade, to ensure that sellers receive payment promptly once they have shipped goods and presented the necessary documents.

• Example 1: International Trade of Goods

  An electronics manufacturer in South Korea sells a large shipment of televisions to a retail chain in Canada. To ensure prompt payment, the South Korean manufacturer ships the televisions and then presents a sight draft, along with the shipping documents (like the bill of lading and commercial invoice), to their bank. This bank then forwards the sight draft and documents to the Canadian retail chain's bank.

  How it illustrates the term: Upon receiving the sight draft and verifying the accompanying documents, the Canadian bank immediately pays the specified amount to the South Korean manufacturer's bank. The Canadian retail chain then receives the documents needed to claim the televisions. The payment is made "at sight" – as soon as the draft is presented and verified – ensuring the seller is paid without delay after shipment.

• Example 2: Purchase of Specialized Equipment

  A construction company in the United States orders a custom-built crane from a German manufacturer. The contract stipulates that a significant portion of the payment is due immediately upon the crane's successful delivery and inspection at the U.S. port. The German manufacturer, upon the crane's arrival and a satisfactory inspection report, issues a sight draft for this payment portion.

  How it illustrates the term: The German manufacturer presents the sight draft, along with the inspection report, to the construction company's bank. The bank, after confirming the documents, processes the payment to the German manufacturer without delay. This demonstrates a sight draft because the payment is demanded and made instantly upon the presentation of the draft and proof of delivery/inspection.

• Example 3: Immediate Payment for Services

  A freelance software developer completes an urgent, critical project for a client. Their contract specifies that a final payment is due immediately upon the client's acceptance of the completed work. After the client confirms satisfaction, the developer issues a sight draft for the remaining balance, attaching the client's acceptance confirmation.

  How it illustrates the term: The developer presents the sight draft and the acceptance confirmation to the client's finance department. The finance department, upon reviewing these documents, processes the payment to the developer immediately. This use of a sight draft ensures the developer receives their final payment as soon as the conditions for immediate payment (client acceptance) are met and the draft is presented.