Drawing Of Trade Acceptance By Seller On Buyer

The seller then draws his trade acceptance on the buyer, stipulating thereon that it arises from the sale of goods, and forwards it to the buyer together with his invoice for the goods sold. Other papers, such as weight sheets, bill of lading, delivery order, etc., may accompany the trade acceptance. (For forms of trade acceptances in use, see Part IV. For ordinary use, Form No. 1 is recommended as the best. However, other forms are equally well adaptable for other classes of business and it is a matter of choice with users as to which form is most advantageous to them).

Buyer "accepts" thereby certifying to correctness of sale. - The buyer then examines the trade acceptance, the invoice, and the other papers, if present, to see that all terms of the sale are in accordance with the original intent of the buyer and seller, and after convincing himself that the conditions of the sale have been complied with and that the trade acceptance is in proper form, and after he is willing to assume that title to the goods has passed to him, he accepts the trade acceptance by writing across the face of the instrument the word "accepted," the date of acceptance, and the place of payment. If it is a firm, the name of the firm and the individual conducting business thereunder, is signed in the acceptance.

Place Of Payment

The place of payment is usually the bank of the buyer. By the Negotiable Instruments Law, uniform in the majority of States in the Union, a trade acceptance payable at a designated bank acts in the same manner as a check, and upon presentation for payment at maturity at the bank of the buyer, providing sufficient funds are there to meet it, it will be paid the same as a check. Five states in all do not recognize the negotiable Instruments Law and an acceptance therefore in those states, does not take the form of a check. After being accepted in the above form, the buyer returns the trade acceptance to the seller.

Presenting Draft For Acceptance And Payment

If the seller prefers, he may present the acceptance to the buyer himself together with the bill. On the other hand, if he think it more desirable, or if the buyer is not in his town, he may request his bank to handle the acceptance and collection of the draft, in which case he would give to the bank all papers necessary to the transaction, together with the acceptances. The bank would then present the trade acceptance to the buyer on behalf of the seller, and after having been accepted by the buyer, it would either be held by the bank to maturity, when payment would be made by the buyer. In this connection, the seller, has his choice. He may either receive from his bank the accepted paper, holding it to maturity, when he would again hand it back to his bank, or he could request the bank to hold the acceptance until maturity.

Negotiation Of Accepted Paper

After the seller has received the accepted paper, he may arrange to have it negotiated. By this is meant that the seller may have the trade acceptance discounted, in which case are brought together the acceptor, the seller, the bank, the note broker and the Federal Reserve Bank. The position of the seller is that of the holder of the accepted paper. The buyer figures as the party obligated to pay the acceptance at maturity. The note broker or commercial paper broker is the intermediary between the seller and the bank. To him is generally given the work of selling the accepted paper to some bank or investor. The seller may deal with the bank direct, but in this case it is the general opinion that he is benefited much more by letting the broker handle the transaction, as the latter is familiar with the market for commercial paper and generally knows where the greatest demand for the same exists, thereby being enabled to obtain the best rate of discount.