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.