Time drafts are known as financial drafts that contains a payment date that is set for some specified future point in time. Generally, in order for the time draft to pay out there are specific circumstances or conditions that must be met. Usually, the time draft is put in place with the expectation that certain events would occur between the date that the draft is created and the date that the draft is set for execution.

Time draft is different from sight draft

There is a difference between a time draft and the common sight draft. The transaction can take place at any time with a sight draft. All that is needed is that the issuer of the draft has to initiate the transaction.

The sight draft will be honored and processed upon presentation as long as the draft meets the general terms and conditions that apply to any type of transaction conducted by a bank or financial institution.

Time draft cannot be executed before the date mentioned

On the contrary, no one can execute the time draft before the date that is specified in the terms of the draft agreement.

Furthermore, before the issuing financial institution will execute a time draft any provisions that are included in the text of the draft must be complied with in full. For instance, if it is anticipated that a Letter of Credit will be approved before the execution date named in the time draft, then the approval must take place and be confirmed before the time draft will be honored.

It is a helpful tool in keeping projects on target for completion

Sometimes the time draft is used as a means of making advance preparations to render compensation to a third party is payable in the future. The issuing institution usually requires some sort of proof that the project or task has in fact been completed before the draft is honored and processed, in situations where the payment is conditional on the completion of specified tasks or projects contracted by the third party. Thus, in this way the time draft sometimes serves as a helpful tool in keeping projects on target for completion, as the recipient of the draft has got a vested interest in completing the work on schedule and receiving compensation in a timely manner.

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