Evening star., 1921-06-19
AND
THEIR USE IN TRADE
Guaranty Trust Officer De-
scribes This Credit Feature
in Plain Language.
BY j. l.. O'NEILL.
Vice President Guaranty Trust Co.

@.
There are two kinds of acceptances
-tIaoe acceptances and bank ac-
In Great Britain and in many coun-
tries OF continental Europe practically
VERY commercial ~-knsaction is financed
~ means OF time draft or bill
OF exchange. The draft is drawn
py tne seller of the merchandise and
presented to the bur rer, who. il he
nnds 1t satisfactory, Writes across it's
Idce the word Accepted" signs his
name ana returns the draft to the
selier. 1t then becomes a trade ac-
ceptance-a sound circulating medium
mands low rate of interest and
which the seller, il he desires NAV
discount at his bank.
Ihe use OF the trade acceptance in
this country prior to the civil war
was more or less general. but after
tnat conhict the increasing financial
disorganization and the risk attend
ing the granting of long credits Gre
ated demand for cash, which made
the eaS6 discount system so popular
daat = - sance continued in favor
This - - he open book account.
While rfe akahe acceptance today is
being used to much greater extent
than few years ago, goods are still
bought and sold largely on opeu
account.
Urging General Use.
A very active and aggressive propa.
ganda is being carried on throughout
the principal commercial centers OF
the country in favor of trade accept
ances, and their use has considerably
increased. Many of the leading COM
mercial and industrial concerns have
adopted this new system of credit
and most banks are inclined to pur-
chase such two-name paper arising
oil ,<,,.s.
between the drawer and the acceptor.
A trade acceptance is a time draft
or bill OF exchange, drawn by the
seller OF goods on the buyer for the
purchase price, and accepted by the
buyer. payable on a certain date at a
instrument. A trade acceptance
amounts to a negotiable guarantee by
the purchaser of goods that at a
specified time and place he will pay
the purchase price. An acceptance
being a negotiable instrument. the
seller. by means of it, may obtain the
use of the outlay it represents for
further enterprises by selling it to his
bank.
A note is ordinarily used to borrow
money or to settle overdue obliga-
tions. A trade acceptance shows on its
face that it is drawn by the seller on
the purchaser of merchandise for the
price of the goods. When accepted.
it becomes a valid promise to pay on
specified date. negotiable instru-
ment equally as binding upon the
person accepting it as his promissory
note would be. AS trade accept
ance is an obligation of the buyer in
dorsed by the seller. the bank dis
counting it is secured by two-name
instead of by one-name paper, as is
the case with most promissory notes.
Trade and bank acceptances are in
struments of credit, which should be
employed in the financing of business
and industry, in the moving of crops.
and in numerous other ways, and
American merchants should make use
of them as the best method of car
rying on both their foreign and do
mestic trade.
The seller desiring to use the ac-
ceptance method, in making out an
invoice for sale of goods. forwards
with the invoice a time bill or draft
drawn on the purchaser for the pur-
chase price, payable at a specified
date; or where the buyer makes sew
eral purchases of small amounts dur
ing the month. the seller in making
up the monthly statement forwards
with it draft or bill made out for
the total amount due.
Hold TIL Maturity.
When the purchaser of goods re-
ceives the draft or bill he may pay
it at once. having deducted whatever
is allowed as discount for prompt
payment in cash, or he may write
across the face thereof the date and
the words, for example: Accepted
payable at Guaranty Trust Company
of New York The buyer then signs
his name and returns the instrument
to the seller. The latter either keeps
it until a few days before it natures,
when he sends it to his bank. which
makes collection from the bank at
u,h
if the seller desires funds, he may
discount It at his bank or sell in the
open market through an acceptance
dealer.
The place of payment is at the
office of the buyer of the goods,
namely. the acceptor. if no other
place is designated. To facilitate the
collection of trade acceptances the
paper should be made payable at the
acceptor's bank, and the banker and
acceptor should make ARRANGEMENTS
so that maturing acceptances are
charged to the acceptor's account on
the date of maturity. In most states,
however, the banker may auto
matically charge maturing accep-
tances to his customers account.
In countries abroad. where bills of
exchange and acceptances hav@
reached their highest development as
credit instruments and circulating
mediums. it has been the custoI
that they shall be issued for com.
mercial purposes o. against actuS
represent current merchandise trans
actions connected with the purchase
and sale of goods, and should not
be given for overdue accounts or
country follows the rulings of the
Federal Reserve Board respecting
eligibility for discount and purchase
by federal reserve banks.
The trade acceptance releases FUNDS
tied up in outstanding accounts. and
invested capital acquires more liquid
ity under a system which offers ne-
gotiable paper in place of non-ne-
gotiable open-book accounts. Rela-
tions between buyer and seller are
vastly improved by paper which
clearly defines their respective rights
checked by the constant reminder to
the debtor that his credit is apt to
be tested at any time.
The buyer derives certain advan-
tages from the use of the trade ac-
ceptance. 1t develops in him the
to judge how he stands financially
and what he can do with his capital
and it strengthens his credit. Hf
is able definitely to fix the dates Of
his payments. thus developing .
habit of promptness in fulfilling OBJ
The small buyer is better able to
compete with larger firms, since the
trade acceptance gives him a better
credit rating and places his business
on a definite financial basis, which
cannot be the case when his debts
are in the form of open accounts
with no means of ascertaining when
they will be liqHdated.
Sellers or manufacturers with limit
ed capital, by the adoption of the
trade acceptance method. avoid the
necessity of heavy borrowing, and
the tying up of their capital and