Days sight describes a special set of payment terms that may be used in international trade. Many suppliers who ship internationally rely on a letter on credit from the buyer's bank to ensure they will be paid for their goods. Once the supplier ships the goods, he issues a draft, or invoice, against this letter of credit so he can receive his payment. The buyer and his bank can put a days sight clause into the letter of credit which states that the draft will not be paid for a specified number of days from the point the draft is presented to the bank. For example, an agreement that includes a 90 days sight means that the buyer will not be paid until 90 days after he presents the draft for the shipment to the bank.
A contract or letter of credit with a days sight clause should not be confused with a sight draft agreement. Under a sight draft, the bank agrees to issue payment to the seller immediately after the buyer lays sight on the good. This means the buyer has had a chance to inspect the packages and ensure they are correct. A sight draft is more favorable to the seller, who gets paid more quickly and is less likely to experience problems with the payment than under a days sight agreement.
The days sight agreement is also known as a term draft. This means that the draft will not be paid for a specified number of days. The number of days that the bank will hold payment should always be spelled out in the agreement or letter of credit, and can vary from as few as three days to 120 days or more.
There are a number of reasons why banks and buyers prefer a days sight payment agreement to a sight draft or other payment agreement. Obviously, the buyer holds on to his money longer this way, and enjoys a form of credit arrangement. Days sight also gives the buyer or his agents a chance to fully inspect the goods before issuing payment. If he spots a problem before payment is made, he may be permitted to cancel the order. The seller is also much more likely to cooperate with the buyer at this stage to ensure he will be paid.
A days sight agreement is also a valuable tool when buying or selling property or mining rights. In the case of a mineral mine, for example, the buyer can issue a contract along with a days sight draft. This draft is often enough to convince the seller to hold the property, or reserve it for this specific buyer for the period specified in the draft. During the draft period, the buyer is able to test the land to ensure it actually holds a level of minerals or other materials that he plans to mine.