Introduction to Finance

Table 16.2
summarizes some of their diff erences. 
Acceptances
Another type of receivable instrument that arises from sales transactions is an acceptance. 
An acceptance is a receivable from the sale of merchandise on the basis of a draft or bill of 
exchange drawn against the buyer or the buyer’s bank. The bank “accepts” the draft, indicating 
that payment will be made on a specifi ed future date by the bank if the debtor cannot pay the 
bill on time.
The accepted draft or bill of exchange is returned to the seller of the merchandise where 
it may be held until the date payment is due. During this period, the business may discount, 
or sell, such acceptances to another bank in order to get cash—or can use the acceptance as a 
form of payment to others.
16
Joseph Pereira, “Bradlees Seeks Bankruptcy Protection, But Denies it is Facing Liquidity Crisis,” 
The Wall Street 
Journal
,
 
(June 26, 1995), p. A10; Susan Pulliam and Laura Bird, “Concern Rises about Retailer Caldor’s Ability to Deal 
with Cutthroat Rivalry; Stock Sinks,” 
The Wall Street Journal
,
 
(August 24, 1995), p. C2; Laura Bird, “Caldor Files for 
Bankruptcy Protection in Face of Weak Sales, Jittery Suppliers,” 
The Wall Street Journal
,
 
(September 19, 1995), p. A3; 
Roger Lowenstein, “Lenders’ Stampede Tramples Caldor,” 
The Wall Street Journal
,
 
(October 26, 1995), p. C1.
17
See, e.g., Catherine Cliff ord, “CIT’s Long Goodbye,” accessed January 29, 2013, at http://money.cnn.com/ 
2009/11/03/smallbusiness/cit_bankruptcy_ripple_eff ects/.

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512
C H A PT E R 1 6 Short-Term Business Financing
The use of the banker’s acceptance is discussed in detail in Chapter 6 in connection 
with an international shipment of goods. But they can be used for fi nancing with one’s home 
country, too. In some countries, acceptances are used as a secondary currency. That is, a 
fi rm receives an acceptance from a customer’s bank; in turn, the fi rm uses the acceptance 
paper to pay one of its suppliers—who in turn uses the acceptance to pay its bills. As long as 
the initial amount owed is “accepted” by a bank with a good credit rating, the paper can be 
used until cash is fi nally transmitted on the acceptances by either the original debtor or the 
accepting bank.
18