Bank acceptance is a short-term loan made to exporters or importers with the aim of facilitating international trade. It consists of a letter of credit that is issued to support an international transaction.
The procedure begins with the issuance of the letter of credit. Upon completion of the transaction, the letter of credit is accepted and must be paid at a future time at face value.
Bank acceptance functions
Bank acceptance is used primarily to:
- Replaces bank credit : This allows banks to alleviate the pressure exerted by the demand for credit.
- It is a negotiable security : They favor the economic and financial development of the country.
Characteristics of bank acceptance
The main characteristics of bank acceptance are shown below:
- It is only used in transactions that involve the sale of real estate.
- It does not imply an immediate outlay of money.
- It is a negotiable security in the secondary market.
- Even if the bank does not use its resources, it acquires the commitment to pay at maturity.
- Acceptance implies that the bank subsequently makes a disbursement in favor of a third party, making it a creditor of its client.
- The bank can decide whether or not to finance the acceptance upon maturity.
- The letters that have been accepted cannot be renewed or extended.
Requirements to be able to make use of a bank acceptance
Below are some of the cases in which a bank acceptance can generally be requested:
- Have a checking account at the bank.
- Present the documents of the sale.
- The beneficiary must be perfectly identified.
- Constitute a guarantee similar to that of a documentary credit.
- That the maturity is not more than 6 months.
- Have an approved credit limit.
Advantages of bank acceptance
Some of the advantages that bank acceptance transfers to buyers and sellers are the following:
For the buyer:
- It speeds up purchases notably since there is a bank backing.
- The payment period for the goods is extended.
- It allows the possibility of working with higher purchase volumes.
- Resources are obtained at low cost.
For the seller:
- Lower risks in the client portfolio.
- Increase the buyer base.
- Sales volume improvement.
- You can discount acceptances on the stock market in periods of liquidity difficulties.
- The acceptances serve as a real guarantee when requesting credits.