Acceptance Financing

Summary of Acceptance Financing

An arrangement by which a bank extends to an exporter or importer a line of credit, known as the acceptance facility, to finance the purchase or sale of goods. The borrower draws against the line of credit by drawing drafts, with future maturity dates, upon the bank; the bank will accept such drafts, up to the amount of the acceptance facility, with maturities thirty, sixty, or ninety days hence. The bankers' acceptances so created may be discounted, resulting in cash for the borrower. The bank, as collateral for the financing provided, may require that the borrower hypothecate, or pledge, bills of lading, or warehouse receipts, evidencing title to the goods that have been financed, or otherwise provide acceptable security. Borrowers of high standing may be extended clean, or unsecured, credit. Acceptance financing can be arranged not only through banks but also through specialized financial firms known as acceptance houses.

(Main Author: William J. Miller)