TeachMeFinance.com - explain Documentary bill for acceptance
Documentary bill for acceptance -- A time draft (bill of exchange)
drawn on the receiver or consignee of a shipment of
property and. accompanied by documents. The documents,
comprising the bill of lading, policy of insurance, etc., are
attached to the draft and are surrendered on the acceptance of
the draft by the consignee so that the consignee may at once
obtain possession of the property instead of waiting until
actual payment of the bill is made.
Example : A in New York makes a shipment of goods to B
in London for which payment is to be made at some future
time, say in three months. It is not necessary for A to wait
three months for his money. A draws on B for the amount of
the goods (that is, the amount in money) and attaching
to the draft the bill of lading for the goods, with policy
of insurance, etc., sells the draft to a dealer in foreign exchange in New York, who forwards it to his correspondent
in London. The correspondent in London presents
the bill to B in London for acceptance. B writes on its face
his acceptance (an acknowledgment of the obligation and a
promise to pay it when due) and the bill of lading is surrendered
to him. Possession of the bill of lading gives him
possession of the goods. In the meantime A has been paid for
the goods while B when he formally obligates himself to pay
for them knows not only that they have been shipped but also
holds (in the bill of lading) title to them.
A draft payment of which is to be made on presentation (a
sight draft, in other words) is, when accompanied by documents,
termed a documentary bill for payment, as distinguished
from a documentary bill for acceptance.
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