What is an Acceptance
An acceptance is a contractual agreement on a time draft or sight draft to pay the amount due at a specified date. The party who is expected to pay the draft writes "accepted," or similar wording indicating acceptance, next to his or her signature along with the date. This person then becomes the acceptor, and is obligated to make the payment by the maturity date.
A banker's acceptance is a time draft honored by a bank, and is typically used in international trade. A trade acceptance is a time draft drawn by the seller of goods on a buyer. In a trade acceptance, the buyer is the acceptor.
BREAKING DOWN Acceptance
An acceptance agreement strengthens a time draft by putting the acceptor under contractual obligation to pay. International trade is facilitated by banks enacting banker's acceptances, thereby guaranteeing the payment for goods.
Example of an Acceptance
For example, if Mr. Koala in Australia is going to sell a bushel of eucalyptus leaves to Mr. Panda in China, there might be an acceptance drawn to act as a short-term line of credit with which Mr. Panda might purchase the bushel of eucalyptus. Mr. Koala would send the acceptance to Mr. Panda, who would sign it indicating his intent to pay the amount on the document at the time specified.