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Banker's Acceptance - Explained

What is a Banker's Acceptance?

Written by Jason Gordon

Updated at April 6th, 2023

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What is a Banker's Acceptance?

A banker's acceptance (BA) is a debt instrument which is guaranteed by a commercial bank and issued by an individual company. A bankers acceptance represents the commitment of a commercial bank to make a payment in the future. A bankers acceptance can also be referred to as a commercial bank draft which reflects the commitment of the bank to pay whoever holds the acceptance a certain amount at a future date.

Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY

How Does a Banker's Acceptance Work?

A bankers acceptance is a draft that states the amount of money the holder of the instrument must be paid at a specified date. Bankers acceptances are issued by companies and backed by commercial banks. The short-term debt instrument allows the holder or bearer to receive the amount stated in the acceptance on the specified date. Being a short-term negotiable instrument, a bankers acceptance can have a maturity date which ranges from 30 to 180 days. 

Related Topics

  • Commercial Paper (Intro)
  • What is Commercial Paper?
  • Negotiable Instrument
  • What are the common types of commercial paper?
  • Promissory Note
  • Cashier's Check
  • Convenience Check
  • Certified Check
  • Substitute Check
  • Bill of Exchange
  • Bank Draft Definition
  • Sight Draft Definition
  • Bankers Acceptance 
  • Who is a Holder of a negotiable instrument?
  • Commercial Paper Funding Program
  • What is Negotiability and why is it important?
  • What is required for commercial paper to be negotiable?
  • Sum Certain (Contracts)
  • Inflation Adjustment Clause
  • When does commercial paper contain an Unconditional promise to pay?
  • Backup Line of Credit
  • What is Payable on Demand or Payable on Time?
  • What is Order Paper and Bearer Paper?
  • Bearer Form
  • How is a payee identified on the negotiable instrument?
  • What rules does the court apply in determining negotiability?
  • How is commercial paper negotiated to a holder?
  • What is Transfer of a negotiable instrument?
  • What is Indorsement of a negotiable instrument?
  • What are the various types of indorsement?
  • Bank Endorsement
  • Blank Endorsement
  • Accommodation Endorsement
  • How does a holder receive payment on a negotiable instrument?
  • Who is potentially liable on (or obligated to pay) a negotiable instrument?
  • When is an individual liable for a representative signing a negotiable instrument?
  • What rules apply if a holder loses a negotiable instrument?
  • When is payment of a negotiable instrument overdue?
  • What effect does a negotiable instrument have on the underlying obligation?
  • What is a holder in due course?
  • What are the requirements for a holder to become a holder in due course?
  • Receive an instrument for value?
  • Receive an instrument in good faith?
  • Receive an instrument without notice of a valid defense?
  • How does discharge of the Underlying Obligation affect a holder in due course?
  • What is the Shelter Rule?
  • Can you limit a transferee from becoming a holder in due course?
  • Personal Defenses?
  • Real Defenses?
  • What is a Claim in Recoupment?
  • What are the rights of a holder in due course if the instrument involves a consumer transaction?
  • What happens if a negotiable instrument is Forged?
  • What happens if a negotiable instrument is Stolen?
  • Guaranty or Guarantee
  • Letter of Guarantee
  • Personal Guarantee
  • What is the role of a Guarantor or Surety of a negotiable instrument?
  • Surety 
  • Cosign
  • Accommodation Paper Definition
  • Secondary Liability
  • Avalize Definition
  • What is an Accord & Satisfaction?
  • What is primary and secondary liability on an instrument?
  • What is Drawer or Maker Liability for a negotiable instrument?
  • What is Transferor Warranty of a negotiable instrument?
  • What is Indorser Warranty of a negotiable instrument?
  • What is Presentment Warranty of a negotiable instrument?
  • What is a warrantors liability for a dishonored note or draft?
  • What is the time limitation for warranty of a negotiable instrument?
  • When are the warranties of a negotiable instrument discharged?
banker's acceptance financial instruments

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