Purpose Of Acceptance

The purpose of the trade acceptance system is to supply a means for the settlement of accounts by "trade acceptances" and it is designed as a substitute for the open account in all cases where business is not conducted on a cash basis or by the giving of promissory notes.

Acceptance Not Adaptable To Every Kind Of Business

The trade acceptance is not adaptable to every kind or branch of business, and the entire question of such adaptability must be decided upon from the particular nature of the business.

For instance, it could not be expected that the trade acceptance should act as a substitute for a system of cash settlements where business is conducted entirely upon that basis. Neither could it be expected to offer any greater facilities in the conduct of any business which is based upon the periodical settlement of bills on short terms, of say, a few days, for that is practically equivalent to a system of cash settlements.

Acceptance A Scientific Credit Instrument

The acceptance represents generally a convenient and scientific kind of credit instrument which could be used to great advantage in all lines of business not upon a cash or upon a short term basis.

Acceptance And Note Distinguished

The trade acceptance must be distinguished from a promissory note or a sight draft. A note is drawn by a person, whereas an acceptance is drawn on a person. Trade acceptances are used entirely for different purposes than are promissory notes. Promissory notes are used generally for the purpose of borrowing money and for the settlement of past due obligations. The underlying basis of the trade acceptance is that it is drawn by the seller of merchandise on the purchaser for the purchase price of the goods sold, that is, arises from present values. When accepted, the trade acceptance constitutes a valid promise to pay on a specified date. It is a negotiable instrument, the same as a note. The trade acceptance is used in current transactions only. It has nothing to do with any purposes other than those arising from a transaction involving the sale of goods. It cannot be given for borrowed money or past due obligations.

Trade Acceptance Arises From Sale Of Goods

The trade acceptance expresses an obligation arising from the sale of goods. In order to understand the simplicity and procedure involved in its operation, an example beginning from the time of sale to the time of discharge of all parties concerned, is given in the following:

Making of sale on terms of "trade acceptance." - A seller having been in negotiations with a buyer, has consummated a deal for the sale to the latter of a quantity of merchandise at a stipulated price, with a definite term of payment agreed upon. The location of the buyer and seller is immaterial. The credit of the buyer, it must be assumed, has been considered by the seller, and all terms of the sale are ready to be carried into effect. Assume, also, that the merchandise has been sold on terms of "trade acceptance," having a maturity of ninety days.