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acceptance letter of credit

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Wed, 03/10/2010 - 05:36
amran_raza
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Joined: 03/08/2010
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hi,

wht does means of acceptance letter of credit.

& wht is difference beween acceptance l/c and normal l/c.

thks

Imran Nazir

‹ Bill of Lading (notify party and Port of Discharge) Approval basis ›
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Thu, 03/11/2010 - 17:32
#1
LC Sam
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Joined: 08/09/2007
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Acceptance letter of credit

Hi Imran,

The term accepantance letter of credit means that the letter of credit will be set up such that the nominated bank will accept a draft and create a banker's acceptance.

What happens is that the applicant of the letter of credit wishes to have terms for payment. The beneficiary is willing to provide these terms provided they are guaranteed payment at the end of that term.

For example they may want to pay for the goods 90 days after the bill of lading date.  This will allow the applicant to sell the goods and they would use those proceeds to pay for the letter of credit.

When the beneficiary presents the documents to the bank, the bank accepts the draft, creating a banker's acceptance which guarantees payment by the bank 180 days after the bill of lading (the maturity).   The bank would also release the shipping documents to the applicant so that they can obtain the goods. 

The banker's acceptance belongs to the beneficiary and they may retake possesion of it or ask the bank to hold it is safekeeping. Since the banker's acceptance is a form of commercial paper that the beneficiary can now hold until maturity or sell at a discount on the open market.  The holder of the banker's acceptance would be paid at maturity by the bank that accepted the draft.

In the end, an acceptance letter is a way for the applicant to finance the purchase of the goods through the letter of credit, whereas a sight letter of credit does not allow for such financing.

I hope this helps you out.

Best regards,

LC Sam

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Thu, 09/02/2010 - 20:52
#2
mohkahn
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Joined: 01/01/2008
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Revisiting acceptance

Thanks LC Sam for this detailed explanation. 

as far as payment is concerned to the bene and as far as the maturity of the drafts are concerned...

I am a bit confused about the 90 days and 180 days period. If it's acceptance at 90 days after bill of lading date, then the bene gets paid within 80 days for e.g. if he submitted the docs to the bank 10 days after the b/l date and bank agreed to give banker's acceptance on the same day? 

so I am confused as to how did the scenerio change to 180 instead? which is double of 90 days. 

thanks for your input.

and if the bene wishes for earlier payment, does he only have 1 option to sell (on discount) the drafts before maturity to any party if it's acceptance by payment via avaiblable any bank? or can use use some other facility e.g. TR? for ealier payment? 

thanks. 

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