Listen to a Business English Dialogue about Documentary draft
Robert: Hi Danielle, have you heard about a “documentary draft” in finance?
Danielle: No, I haven’t. What is it?
Robert: It’s a type of payment method used in international trade where the exporter sends shipping documents, like the bill of lading, to the importer’s bank, which then releases the documents to the importer upon payment.
Danielle: How does a documentary draft differ from other payment methods?
Robert: Unlike other methods like letters of credit or cash in advance, a documentary draft allows the importer to review the shipping documents before making payment, providing an added layer of security and trust.
Danielle: What are some advantages of using a documentary draft?
Robert: Using a documentary draft can help mitigate the risk of non-payment for the exporter while also allowing the importer to ensure that the goods received match the shipping documents before releasing payment.
Danielle: Are there any drawbacks to using a documentary draft?
Robert: One drawback is that it can be time-consuming and administratively burdensome, as both parties need to coordinate the exchange of shipping documents and payment through their respective banks.
Danielle: How does the documentary draft process work?
Robert: Once the exporter ships the goods, they send the shipping documents to their bank, which then forwards them to the importer’s bank along with the draft for payment.
Danielle: Can you explain the role of the importer’s bank in the documentary draft process?
Robert: The importer’s bank verifies the shipping documents to ensure they meet the terms of the draft, and upon payment from the importer, releases the documents to them so they can claim the goods from the shipping carrier.
Danielle: How do documentary drafts help facilitate international trade?
Robert: Documentary drafts provide a secure and transparent method of payment and documentation exchange, which helps build trust between trading partners and facilitates smoother transactions across borders.
Danielle: It seems like using a documentary draft can help both exporters and importers manage risk and ensure the smooth flow of goods in international trade.
Robert: Absolutely, it’s a widely used payment method in global trade that offers benefits for both parties involved.