Definition of Acceptance Credit

An Acceptance Credit is a documentary credit that needs provision of a term for the bill of exchange. Usually, the bill is then accepted by the bank on which it is then discounted or drawn. The beneficiary here is paid promptly at that particular discount. This is applicable only for companies and enterprises that run a line of credit in order to grow their business.

Unconfirmed acceptance credit implies that the seller goes broke and that installment won't be made. This can happen due to any number of possibilities. For example, shipment non-conveyance, reallocation by customs authority, or some other issues. Confirmed acceptance credit implies that the bank whereupon the credit has been issued, basically ensures installment as long as the terms of the letter of credit have been followed.

Points to remember

• Confirmed acceptance credit is more costly to build up than unconfirmed acceptance credit in light of the fact that the issuing bank is viably ensuring installment.
• Banks may likewise make an acceptance credit offer. Thus, enabling an organization to issue time drafts not connected to particular shipments with a specific end goal to give a general working capital fund.