Bankers Acceptance
Content
OXFORD INSTITUTE OF MANAGEMENT STUDIES, HUBLI.
PRESENTATION ON:
BANKERS ACCEPTANCE
PRESENTED BY: SHILPA.V.H
A bankers acceptance (BA) is a time draft drawn on a bank, typically to finance an international transaction where one party is unwilling to offer their goods or services on credit.
A banker's acceptance is issued by the customer and is an order for the bank to pay a provider of goods a certain amount of money at a predetermined date.
Once the bank accepts this order, they are liable to pay the vendor of services. Basically, a banker's acceptance enables a customer to use the
banks credit rating to finance their trasanction. The customer will owe the face value of the BA to the bank before the BA will be redeemed by the seller.
The Creation of a Bankers Acceptance:
An importer may request acceptance financing from its bank, as he is not having close relationship with exporter & cannot obtain financing from the exporter.
Once the importer and bank have completed an acceptance agreement, in which the bank agrees to accept drafts for the importer and the importer agrees to repay any drafts the bank accepts, the importer draws a time draft on the bank.
The bank accepts the draft and discounts it; that is, it gives the importer cash for the draft but gives it an amount less than the face value of the draft.
The importer uses the proceeds to pay the exporter.
Essentially, the bank is substituting its creditworthiness for that of its customer in order to assure the export that he will not be hung out to dry after shipping the goods. The acceptance is then sent to the exporter. Example: AB Foreign Cars is purchasing 3 German cars for its showroom floor. AB cannot pay for the cars in in advance and has not yet established a credit record with the German manufacturer.
On the other hand, AB has an excellent credit record with its bank. AB goes to its bank and fills out the documents required for a draft to be made out to the German manufacturer. The payment date of the draft is one week after receipt of the 3 cars, giving ABC time to perform a thorough inspection of the delivery.
AB's bank knows from experience that AB is good for the money (or perhaps the funds are deposited in the bank). Therefore, AB's bank
accepts the draft on behalf of AB and sends it on to the German manufacturer who is now assured that he will be paid for the shipment of cars.
IMPORTER > IMPORTER'S BANK > ACCEPTANCE > MANUFACTURER
PRESENTATION ON:
BANKERS ACCEPTANCE
PRESENTED BY: SHILPA.V.H
A bankers acceptance (BA) is a time draft drawn on a bank, typically to finance an international transaction where one party is unwilling to offer their goods or services on credit.
A banker's acceptance is issued by the customer and is an order for the bank to pay a provider of goods a certain amount of money at a predetermined date.
Once the bank accepts this order, they are liable to pay the vendor of services. Basically, a banker's acceptance enables a customer to use the
banks credit rating to finance their trasanction. The customer will owe the face value of the BA to the bank before the BA will be redeemed by the seller.
The Creation of a Bankers Acceptance:
An importer may request acceptance financing from its bank, as he is not having close relationship with exporter & cannot obtain financing from the exporter.
Once the importer and bank have completed an acceptance agreement, in which the bank agrees to accept drafts for the importer and the importer agrees to repay any drafts the bank accepts, the importer draws a time draft on the bank.
The bank accepts the draft and discounts it; that is, it gives the importer cash for the draft but gives it an amount less than the face value of the draft.
The importer uses the proceeds to pay the exporter.
Essentially, the bank is substituting its creditworthiness for that of its customer in order to assure the export that he will not be hung out to dry after shipping the goods. The acceptance is then sent to the exporter. Example: AB Foreign Cars is purchasing 3 German cars for its showroom floor. AB cannot pay for the cars in in advance and has not yet established a credit record with the German manufacturer.
On the other hand, AB has an excellent credit record with its bank. AB goes to its bank and fills out the documents required for a draft to be made out to the German manufacturer. The payment date of the draft is one week after receipt of the 3 cars, giving ABC time to perform a thorough inspection of the delivery.
AB's bank knows from experience that AB is good for the money (or perhaps the funds are deposited in the bank). Therefore, AB's bank
accepts the draft on behalf of AB and sends it on to the German manufacturer who is now assured that he will be paid for the shipment of cars.
IMPORTER > IMPORTER'S BANK > ACCEPTANCE > MANUFACTURER
