Banker's Acceptance

A banker's acceptance refers to a financial instrument that represents a future payment promised by a bank. It specifies the name of the entity where the funds need to be transferred along with the amount and date of payment. Banker acceptance is a short-term financial instrument that represents the promised future payments from a bank and matures within 30 to 180 days.

The application process for a banker's acceptance is equivalent to a short-term loan and involves various credit and parallel checks. Once the bank accepts a banker's acceptance, the liability is immediately transferred from the issuer of the banker's acceptance to the bank.

The issuer of a banker's acceptance deposits future payments in a bank. The bank charges a small fee and issues a one-time draft against the deposit, representing the bank’s guaranteed future payments. Upon receipt of recognition from the bank, the liability is transferred from the issuer of the acceptance of the banker and becomes the obligation of the bank. For example, a banker's credit rating of acceptance is usually the equivalent of the bank that promises the payment.