Discharge Of Acceptor Or Extension Of Time

The acceptor either pays the draft at maturity or secures an extension of time. To secure an extension of time, it would be necessary for the acceptor, that is, the buyer, to have a definite agreement with the seller. If the buyer's business reputation is of a fair standing and his business ability recognized, he should meet with no difficulty in obtaining an extension of time, should he find it necessary.

Summary Of Procedure

Summed up, the procedure would be: First, the sale;

Second, the drawing of the acceptance by the seller on the buyer; Third, the acceptance by the buyer and the return of the same to the seller; Fourth, the keeping of the acceptance until maturity by the seller, or the discounting of the acceptance with a bank or discount house, direct or through the intermediary of a commercial paper broker;

Fifth, the rediscount of the acceptance by the bank or discount house with the Federal Reserve Bank; and Sixth, the payment of the acceptance and the closing of the transaction.

Comparison Between Acceptance And Open Account

How then does the acceptance compare with the open account method? The accepted paper gives to the account a general liquidity. It may be realized upon through the process of discounting and rediscounting, with greater ease than the open account. It releases the billions of dollars tied up in open accounts, awaiting settlement, and enables the seller thereby to do a greater business on a minimum of capital employed.

Elsewhere in the following chapters, there are given outlines of the advantages to the buyer, to the seller, to the banker, to the consumer and to general business, of the acceptance method, in comparison with the open account. It is, therefore, unnecessary to detail such advantages at present. The bank takes over a very important form of banking business and practically takes from the hands of the seller the burden of financing both himself and the buyer.

The acceptance makes for better business methods, is more safe, more economical and much more practicable than the open account method. It is a sort of governor to general business. It creates a cycle of liquidity between commerce and finance.