DEFINITION of Acceptance credit
Acceptance credit an authorization given by a bank to a specified beneficiary to draw drafts upon the bank up to a specified amount is the definition we found at Merriam Webster’s dictionary. It is documentary credit which requires, amongst the documents stipulated, provision of a term bill of exchange. The bill is then generally accepted by the bank on which it is drawn or discounted. The practical result is that the beneficiary is paid promptly at a discount.
WHAT IT IS IN ESSENCE
An acceptance credit is a type of letter of credit that is paid by a time draft authorizing payment on. Payment can be after a specific date too if the terms of the letter of credit have been complied with. A banker’s acceptance is a promised future payment or time draft. That is accepted and guaranteed by a bank and drawn on a deposit at the bank. The banker’s acceptance specifies the amount of money, the date, and the person to whom the payment is due. We can recognize two types of acceptance credit, confirmed and unconfirmed.
A confirmed acceptance credit is a letter of credit. It consists of a second guarantee received by a borrower and as an appendix to the first letter of credit. A confirmed letter of credit is used when the bank which provided the first letter of credit may have questionable creditworthiness. Then the seller requires a second guarantee to assure payment. If the first letter of credit is not followed by a second guarantee then it may be considered unconfirmed.
Unconfirmed acceptance credit letter of credit is the one that has not been guaranteed or confirmed by any other bank. And the confirmation comes only from the bank that opened it. The advising bank merely informs the beneficiary of the letter of credit terms and conditions.
HOW TO USE
Credit Acceptance has not a grace period. You are required to make each payment on the due date specified in your contract with us. Payments received after the due date will be considered past due.