BANKERS ACCEPTANCE

International trade today has become more important to promote the development of each countrys economy in the world. But there are still many problems blocking the growth of international trade. For example, suppose that there are 2 parties in international trade. The sellers in Japan and the buyers in Vietnam. The buyer wants to buy goods from the seller. The problem here is that the seller does not want to ship goods before receiving payment because the seller has never heard of the buyer and realizes that it would be difficult to collect payment due to geographic distance. Similarly, the buyer is reluctant to send money to Japan before receiving the goods. How can the 2 parties do business with each other? And a bankers acceptance is introduced by a bank to solve this situation.

I. PURPOSE :
According to the example above, a bankers acceptance is used to finance goods that have been transferred from the seller to the buyer for the first time. It is also used to give credit to the buyer when the buyer does not have a close relationship with the seller and cannot obtain a credit from the seller. The real purpose of a bankers acceptance is to use a credit of a bank to obtain funds. In short, a BA is used to boost international trade.

II. DEFINITION :
We can define a bankers acceptance as a promised future payment to the bearer on a given date, which is accepted and guaranteed by a bank and drawn on a deposit at the bank. After acceptance, the draft becomes an unconditional liability of the bank.

III.

USING A BANKERS ACCEPTANCE

There are 13 steps for using a bankers acceptance 1. The two parties sign a contract for goods. 2. The buyer applies for a letter of credit. 3. The buyers bank opens the LC and sends it to the sellers bank. 4. The sellers bank examines the letter of credit for validity and, upon verifying such, notifies the seller to confirm the LC. 5. The seller ships the goods. 6. The seller presents the shipping documents and a time draft to his bank to have them negotiated. The draft is drawn on the buyers bank for the selling price of the goods. 7. the sellers bank sends the draft and the shipping documents to the buyers bank. 8. If the documents meet the terms and conditions of the LC, the buyers bank will forward them to the buyer in order to receive the goods. 9. The buyers bank stamps the time draft accepted, thus creating a bankers acceptance. By accepting the draft, the buyers bank has accepted the sellers demand for payment and commits to pay in specified days, like 90days. 10. The bankers acceptance is then sent to the seller through his bank. 11. The buyer makes payment to his bank within 90days. 12. Then the buyers bank uses the funds to pay the sellers bank. Of course, if for some reason the buyer was unable to make payment, the buyers bank would pay the acceptance anyway and attempt to collect from the buyer later.

13. The sellers bank sends money to the seller.

IV.

ADVANTAGES

As mentioned above, bankers acceptances are crucial to international trade. Without them, many transactions simply would not occur because the parties would not feel properly protected from losses. Thats the first advantage. Secondly, The exporter can negotiate the bankers acceptance for immediate payment. This is important when delivery times are long after shipment. Furthermore, due to negotiation for immediate payment, the seller can offer the buyer extended payment terms. That helps him build a good relationship with the buyer. In addition, the exporter is shielded from foreign exchange risk because the bank he negotiates is in his country and pays in domestic funds. The next advantage is the exporter has no need to assess the creditworthiness of the importer because the importers bank guarantees payment. And finally, the importer might get a loan at a bank for the purpose of having funds to buy goods. For importers in developing countries, they can save the cost of a loan if using the bankers acceptance because its rate is usually a much better rate than the bank loan rate in their own country.

V. CONCLUSION :
A bankers acceptance is a time draft which is guaranteed by a bank to make payment. Therefore, it is used to finance international trade. Today it is also an attractive short-term credit investment that creates active secondary markets. Understanding bankers acceptances well will help you know more about the foreign trade financing instrument and do business on a global basis better.