What is a draft in the context of international trade?

In the context of international trade, a draft is a written order that demands payment from the buyer, typically issued by the seller or the seller's bank. This financial instrument essentially instructs the buyer to pay a specified amount on demand or at a future date. This process is often part of a documentary collection, where the seller retains control over the goods until payment is made or a promise to pay is undertaken.

The use of drafts helps facilitate trust in international transactions by ensuring that payment is secured before the goods are released to the buyer. This mechanism plays a critical role in managing credit risk and enhancing the efficiency of trade flows between countries.

Understanding this function of a draft illustrates its importance in international trade, where securing payment is crucial due to the complexities involved in dealing with parties in different legal jurisdictions and economic situations.