Acceptance credit

Acceptance credit

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.

References

* Wachovia bank list of terms, [http://www.wachovia.com/helpcenter/page/0,,2356_2366%5E2%5Elist%5EA_789,00.html accep


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