Trade Documentation
Bill of Exchange
Also known as: Draft, Bank Draft
A bill of exchange, or draft, is a written, unconditional order by one party (the drawer, typically the exporter) instructing another party (the drawee, usually the importer or its bank) to pay a specified sum either on sight or at a defined future date. It is the classic instrument of documentary trade finance: presented together with shipping documents through the banking system, it lets a seller demand payment or a formal promise to pay before the buyer gains control of the goods. When accepted by a bank it becomes a highly liquid instrument that can be discounted for immediate cash, linking the movement of goods to the timing of payment.
An old instrument still in daily use in documentary trade. Its practical value is turning an obligation to pay into a negotiable one, which matters most when a relationship is new and neither side wants to go first.
Related terms
Reviewed by a licensed customs broker. Definitions are general information, not legal or customs advice for a particular shipment. Duty rates, tariff programs and agency requirements change frequently.