Acceptance

What Is an Acceptance?

An acceptance is a contractual agreement by an importer to pay the amount due for receiving goods at a specified date in the future. Documents are presented for acceptance in international trade. The buyer of the goods or importer agrees to pay the draft and writes "accepted," or similar wording indicating acceptance. The buyer becomes the acceptor and is obligated to make the payment by the maturity date.

Acceptance Explained

An acceptance agreement is part of the documentary collections during international trade. During a documentary collection, the exporter's bank is responsible for collecting the funds from the importer's bank. The payment is made once the documents, listing the shipped goods, are presented to the buyer (importer). The buyer has the choice to accept the documents and, if accepted, must pay the invoice based on the terms of the collection. With the documents in hand, the buyer takes them to the shipping port or point of entry and presents them to take possession of the merchandise.

There are two common types of payments with documentary collections:

1. Documents Against Acceptance, or a D/A Collection

The importer or buyer of the goods is presented the documents by their bank and must agree to pay according to the terms, which is usually done via a time draft. A time draft is a legal, binding contract to pay the seller (exporter) the money for the goods at a specified future date. Essentially, a time draft is a promise to pay, and in exchange for that promise, the buyer's bank releases the documents to the buyer or importer. The importer can take the documents to the shipping port and present them in exchange for the goods.

2. Documents Against Payment, or a D/P Collection

Documents against payment is different than a D/A in that it requires that the importer pays up front, meaning the payment must be made before the documents are released by the bank. A D/P is also called a Cash Against Documents or a Sight Draft because it's paid on sight of the documents.

There are different methods of credit used to facilitate international trade. Some importers might not have a solid credit history or could be a new company. Importers can request from their bank for an extension of credit so that the exporter can be paid.

A banker's acceptance is a type of credit in which a time draft is honored by a bank. A banker's acceptance allows the company buying the goods (importer) to use the bank's credit to assure payment to the exporter. The importer's bank would have to approve the credit extension based on the financial viability of the importer. As a result, a banker's acceptance helps to alleviate the risk to the seller (exporter) that the importer might not pay the invoice.

Example of an Acceptance

Let's say a manufacturer of tablets and computers called Apple Inc. needs electrical components from a supplier in China. The Chinese company requests a time draft requiring the Apple, the importer to pay in 60 days from acceptance of the documents.

The goods are shipped to the U.S. port, and the documents are sent from the Chinese bank to the importer's bank in the U.S. Once the goods arrive at the port, the U.S. bank presents the documents to the Apple (importer). The importer accepts the documents and agrees to pay the invoice in 60 days for the cost of the merchandise. With the documents in hand, Apple can take them to the port and collect the goods.