ACCEPTANCE CREDIT Meaning and
Definition
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Acceptance credit is a type of financial arrangement in which a bank or a financial institution guarantees payment for goods or services on behalf of a buyer. It involves an agreement where the bank becomes a guarantor for the buyer by accepting and honoring a time draft issued by the seller. In other words, acceptance credit is a method by which the bank ensures that the seller will receive payment for the goods or services provided to the buyer.
Under the terms of an acceptance credit, the bank promises to make payment at a specified future date, generally upon receipt of documents confirming the shipment or delivery of the goods. The bank's acceptance of the draft guarantees the seller's payment and provides assurance to the buyer that the goods will be released upon acceptance. This form of credit is commonly used in international trade transactions to facilitate the smooth flow of goods and minimize risk for both parties involved.
Acceptance credit is advantageous for buyers as it allows them to secure goods before making payment and provides them with additional time to arrange financing. For sellers, acceptance credit ensures prompt and guaranteed payment, mitigating the risk of non-payment by the buyer. The acceptance bank charges a fee for this service, which is typically borne by the buyer or shared between the buyer and seller.
Overall, acceptance credit serves as an effective financial instrument that promotes trust and facilitates trade between parties that may be geographically distant or unfamiliar with one another. It provides reassurance and security, thus encouraging business transactions and fostering international commerce.
Common Misspellings for ACCEPTANCE CREDIT
- zcceptance credit
- scceptance credit
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- qcceptance credit
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- avceptance credit
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- acceltance credit
Etymology of ACCEPTANCE CREDIT
The term "acceptance credit" is a financial term used to refer to a type of credit arrangement in international trade. The etymology of this term can be traced back to the words "acceptance" and "credit" individually:
1. "Acceptance": The word "acceptance" comes from the Latin word "acceptare", which means "to take" or "to receive". It entered English through the Old French word "accepter" with the same meaning. The concept of acceptance in financial terms refers to the act of agreeing to pay a bill of exchange or a financial instrument at a specified future date.
2. "Credit": The word "credit" comes from the Latin word "creditum", which means "loan" or "trust". It entered English through the Old French word "credite" with the same meaning.
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