Example of an importation acceptance; Procedure; - Let us assume that an importer is desirous of purchasing a quantity of manila hemp. He advises his bank regarding the particulars of the transaction, and his credit standing being satisfactory, his bank issues at his request a so-called commercial credit. By means of this credit, the Philippine exporter is authorized to draw on the bank up to a stipulated amount, which would be for the value of the hemp purchased by the importer. Furthermore, such provisions which require that drafts be drawn and negotiated on or before a certain date, and giving the usance, that is, that the drafts must mature thirty, sixty or ninety days, or whatever the period may be after sight, are included in the commercial credit. Besides stipulations as to the documents and certificates of insurance, bills of lading, etc., to the effect that they must be attached to the drafts, also appear in the commercial credit.

There are two means through which such credit may be availed of by the exporter abroad; first, the mere mailing of the credit to the importer, and secondly, the cabling of the information through a bank located in the vicinity of the exporter.

Upon receipt of this advice, the exporter prepares his shipment, and when so shipped, that is, boarded upon the steamer, he is in possession of the ocean bill of lading and other necessary documents, and is then enabled to draw a draft on the bank in this country issuing the credit for the value of the hemp.

Let us further assume that the draft has a maturity of ninety days, and all documents required by the commercial credit in question are attached to such draft. He then takes the draft to his local bank, which purchases the draft at the current rate of exchange for ninety days' sight dollar bills.

In the above case, the shipping and other documents are all made out or endorsed so as to give the bank purchasing the draft title to the goods. The local bank in Manila forwards the draft and documents to its agency or correspondent in this country. The draft is then presented by the correspondent of the Philippine bank to the bank in this country issuing the credit, and if, after an examination of the draft and documents attached, everything is found to be in order, the bank accepts the draft, returning it to the party presenting it, who, in this case, is the correspondent of the Philippine bank. The accepting bank likewise retains all other documents necessary to be surrendered to the importer. The importer, upon giving the accepting bank a trust receipt in exchange for the documents, is then enabled to get his manila hemp. The importer thus has ninety days in which to secure the manila hemp, and dispose of it or manufacture and sell it before he is required to place his bank in funds to meet the maturing draft. The representative of the Philippine bank sells the acceptance in the open market at the prevailing rate for ninety day bills.

For making this transaction possible, the importer's bank charges him a small commission for accepting the draft. Only credits issued by the well-known banks, of course, will be acceptable to the exporter as he requires a bill which will command the best rate. This acceptance business is therefore usually handled by banks in the larger centers. The lesser known institution usually has credits required by its importers issued by one of its larger correspondents, under the guaranty of the smaller bank.

Example of an Exportation Acceptance; Procedure; - An exporter in this country, let us assume, has been asked to ship a quantity of machinery to a firm in Great Britain. The exporter is not willing to ship the machinery on condition that he draw a draft direct on his customer, nor is he willing to sell such customer on open account.

In such case, a banker's acceptance credit may be availed of. The foreign importer goes to his bank in Great Britain and has a credit arranged with its correspondent in this country to cover the value of the machinery. The British bank, let us assume, considers the credit of the importer as favorable and accordingly requests its correspondent in this country to issue the credit. The British bank, moreover, guarantees that the bank issuing the credit in this country will be placed in funds before such drafts as may be drawn upon it under the credit issued, mature. The exporter is then advised by the bank in the United States that, as requested by the purchaser, it will accept his drafts drawn upon it up to a certain amount, when the drafts are accompanied by documents as specified in the letter of credit.

The procedure in documents in an exportation acceptance is, on the whole, similar to that involved in importations, and the documents must, of course, represent the machinery which has been shipped.

As soon as the exporter secures his necessary shipping and other documents, he draws a draft on the bank here issuing the credit, having a maturity in accordance with its terms, for the value of the machinery. The exporter then presents the draft and documents to the bank issuing the credit, and everything being found in order, the bank accepts the draft and returns it to the exporter, who sells it in the market and thus receives payment for his machinery. Such documents are then forwarded to the British bank, to be released by it to the purchaser, either upon trust receipt or otherwise. The British bank, through remittances, or by charge against its balance in this country, places its correspondent in funds to meet the draft at maturity.