1. Home
  2. Knowledge Base
  3. Acceptance Letter of Credit – Definition

Acceptance Letter of Credit – Definition

Acceptance Letter of Credit Definition

Acceptance Letter of Credit is a letter issued by a bank stipulating certain terms that must be complied with before payment is authorized.  An acceptance credit (letter of credit) is a guarantee for payments made to a specific person under certain conditions.

There are two types of acceptance credit, the confirmed acceptance credit and the unconfirmed one. When a letter of credit is confirmed, it guarantees a bank payment as serves as a proof that all the terms have been met. Unconfirmed acceptance letter on the other hand means the seller might not get fund because conditions of the letter are not met.

A Little More on What is an Acceptance Letter of Credit

Confirmed acceptance credit means that the bank issuing the fund guarantees that the terms of the letter have been met, then initiates payment. Confirmed acceptance credit is quite difficult to establish because once the issuing bank guarantees payment, all risks such as shipment non-delivery or confiscated by customs authorities are transferred to the recipient. However, in a bid to curb the risks attributed to shipment of goods, some banks create acceptance credit facilities where sellers issue time drafts that are not linked to any shipments. Once the terms contained in the letter of credit are met, the seller or issuing companies presents exchange bills to the bank which might either be confirmed or unconfirmed.

References for Acceptance Letter of Credit

Academic Research on Acceptance Letter of Credit

The Law Merchant and the Letter of Credit, Trimble, R. J. (1948). Harvard Law Review, 61(6), 981-1008.

Should Deferred Payment Letters of Credit be Specifically Treated in a Revision of Article 5, McLauglin, G. T. (1990). Brook. L. Rev., 56, 149.

Right of the Beneficiary Under a Commercial Letter of Credit, McCurdy, W. E. (1923). Harv. L. Rev., 37, 323.

How to Handle Letters of Credit, Mentschicoff, S. (1963). Bus. Law., 19, 107.

Offer and Acceptance and Some of the Resulting Legal Relations, Corbin, A. L. (1916). Yale LJ, 26, 169.

Recent developments in the bankers acceptance market, Jensen, F. H., & Parkinson, P. M. (1986). Fed. Res. Bull., 72, 1.

Documentary Letters of Credit, Dougan, A. L., & Calkins, H. (1954). Ohio St. LJ, 15, 33.

Letters of Credit: The Need for Uniform Legislation, Mentschikoff, S. (1955). U. Chi. L. Rev., 23, 571.

Documentary Letters of Credit, Mead, C. A. (1922). Columbia Law Review, 22(4), 297-331.

Credit Cards and the Virtual Acceptance, Hart, F. M. (1959). BC Indus. & Com. L. Rev., 1, 209.

 

Was this article helpful?