Acceptance credit
Encyclopedia
An acceptance credit is a type of letter of credit
that is paid by a time draft
authorizing payment on or after a specific date, if the terms of the letter of credit have been complied with. There are two types of acceptance credit, confirmed and unconfirmed. Unconfirmed acceptance credit means that the seller takes the risk that payment will not be made, due to any number of contingencies such as shipment nondelivery, confiscation by customs authorities, or any other problems. Confirmed acceptance credit means that the bank upon which the credit has been issued, essentially guarantees payment as long as the terms of the letter of credit have been complied with.
Confirmed acceptance credit is more expensive to establish than unconfirmed acceptance credit because the issuing bank is effectively guaranteeing payment. It also transfers the risk of non-delivery to the recipient, because once the seller places the product in the hands of the shipping company
, the seller has complied and will be paid; if the shipment does not arrive, is delayed, or other problems occur, the buyer cannot stop payment or otherwise prevent redemption of the acceptance credit.
Letter of credit
A standard, commercial letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking....
that is paid by a time draft
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
authorizing payment on or after a specific date, if the terms of the letter of credit have been complied with. There are two types of acceptance credit, confirmed and unconfirmed. Unconfirmed acceptance credit means that the seller takes the risk that payment will not be made, due to any number of contingencies such as shipment nondelivery, confiscation by customs authorities, or any other problems. Confirmed acceptance credit means that the bank upon which the credit has been issued, essentially guarantees payment as long as the terms of the letter of credit have been complied with.
Confirmed acceptance credit is more expensive to establish than unconfirmed acceptance credit because the issuing bank is effectively guaranteeing payment. It also transfers the risk of non-delivery to the recipient, because once the seller places the product in the hands of the shipping company
Free On Board
FOB is an initialism which pertains to the shipping of goods. Depending on specific usage, it may stand for Free On Board or Freight On Board. FOB specifies which party pays for which shipment and loading costs, and/or where responsibility for the goods is transferred...
, the seller has complied and will be paid; if the shipment does not arrive, is delayed, or other problems occur, the buyer cannot stop payment or otherwise prevent redemption of the acceptance credit.