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LSDefine
Simple English definitions for legal terms
trade draft
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A quick definition of trade draft:
A trade draft is a written order that instructs a business or its representative to pay a certain amount of money to a third party. It is similar to a check that you write to pay for something. There are different types of drafts, such as a sight draft that can be paid on demand or a time draft that has a specific payment date. The term "draft" can also refer to the compulsory enlistment of people into military service or an initial version of a document.
A more thorough explanation:
A trade draft is a written order signed by one person, instructing a commercial enterprise or its agent to pay a certain amount of money to a third person or to bearer. It is a type of draft that is used in commercial transactions.
For example, if a company purchases goods from another company, they may use a trade draft to pay for the goods. The trade draft would instruct the company's bank to pay the amount specified to the seller or the seller's bank.
Other types of drafts include:
- Sight draft: A draft that is payable on demand or on proper presentment to the drawer.
- Time draft: A draft that contains a specified payment date.
- Bank draft: A draft drawn by one financial institution on another.
- Foreign draft: A draft drawn in one country or state but payable in another.
Overall, a trade draft is a type of financial instrument that is used in commercial transactions to facilitate the payment of goods or services.