Acceptance Credits

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Acceptance Credits


credits extended by banks in the form of acceptance of transferable bills of exchange (drafts) drawn upon banks by exporters and importers.

Acceptance crediting is one of the modes of crediting foreign trade. When selling goods on credit, exporters are interested in having the bill accepted by a large bank. Such a bill can be discounted and sold at any time. In acceptance crediting the credit is formally granted by the exporter but, in contrast to commercial credit, the bank acts as the acceptor of the bill (draft). In making acceptance the bank neither extends credit nor invests its own resources in the acceptance transaction but commits itself to redeem the draft on the date the payment falls due. In those cases where the exporters require cash payments, refinancing is executed—that is, the importer’s bank accepts the draft drawn upon it by the importer, discounts it, and pays the exporter in cash.

Before World War I (1914–18), English banks occupied a dominant position in the acceptance market. After the war, London’s role in the world acceptance market declined. Since World War II (1939–45) the bulk of acceptance credit has been furnished by the banks of London, Paris, and New York. The value of acceptance credits is composed of two elements: the commission for acceptance, amounting to 1–1.5 percent, and the rate of discount, which is usually lower than that of commercial drafts. Short-term (three-month and six-month) drafts are in circulation on the acceptance market.


References in periodicals archive ?
Strong hoped that these emendations would lead to the creation of a large and constantly renewed volume of acceptance credits - he suggested $500 million - which would amount to a standing loan to the Allies.
The first of these restricted the Allies' continued use of unsecured acceptance credits; the second defeated an attempt by the Morgan firm to issue large numbers of British and French Treasury bills upon the New York market.
Moreover, he told Strong, because the New York Reserve Bank had failed to exercise proper control over the situation, too great a volume of such "investment acceptances" had accumulated in the New York market in particular and the system in general.(84) To remedy this situation, he recommended that in future the System discriminate against such acceptances by rediscounting them at a less favorable rate than paper still backed by commercial transactions.(85) In December 1916 the Board voted against implementing such a proposal.(86) On the purely financial level, though, Warburg's attacks on revolving acceptance credits were more convincing than Strong's defense.
After the war Strong and Warburg reversed their positions on the desirability of renewing acceptance credits beyond the consignment of the goods on which they were secured.