Acceptance credits
Unconfirmed or confirmed

Description

Under an acceptance credit, on presentation of the stipulated documents and a time the exporter receives a bill of exchange payment will be effected on the designated due date. The maturity date must be ascertainable in accordance with the tenor of the credit (e.g. 90 days after the date of shipment). The time draft is accepted by the drawee bank once the complying documents have been presented.

Features

The credit is available by acceptance.

  • In the case of unconfirmed credits, only the drawee bank is liable to the exporter and effects acceptance for payment on the maturity date. Consequently, there is a long period during which the credit and country risk are not covered.
  • In the case of confirmed credits, the exporter receives such a payment undertaking on the due date from both the issuing and the confirming bank, which accepts the bill of exchange drawn upon it.

Advantages

Advantages of unconfirmed acceptance credits

  • With a draft accepted by the drawee bank, the exporter is afforded a claim under a bill of exchange independent of the documentary credit which - depending on the drawee's country of domicile - is governed by stringent legislation.

  • The importer is not required to effect payment until the due date. If necessary, the goods can be re-sold during the payment period and the proceeds of the sale used to settle the documentary credit.

  • This is a more cost-effective option than a confirmed credit.

Additional advantages of a confirmed acceptance credit

  • This form of credit offers the exporter extensive security as the credit risk is extremely limited - UBS, for example, is liable to the exporter - and the country risk is eliminated altogether.

  • The draft is drawn on the confirming bank (UBS), who accepts it once the complying documents have been presented. As such, the exporter benefits from an excellent financing instrument independent of the documentary credit. The draft accepted by the confirming bank can be discounted at a favourable rate.

  • The risks associated with postage - late delivery or loss - are largely eliminated for the exporter as the credit is deemed to have been utilized once the complying documents have been presented to the confirming bank.

Disadvantages

Disadvantages of unconfirmed acceptance credits

  • The exporter risks non-payment in the event of problems in the country in which the issuing bank is based or credit-related difficulties on the part of the issuing bank.

  • The advising (nominated) bank is not obliged to accept a time draft drawn upon it.

  • The exporter incurs financing costs during the payment period.

  • Compared with payment against open account or documentary collection, the administrative costs are higher.

Disadvantage of confirmed acceptance credits

This is a more expensive option than an unconfirmed credit because the confirming bank effectively guarantees the payment and thus charges a commitment fee.

Special features

With this type of credit, it is also possible under certain circumstances for the importer to obtain credit for a specified period (generally up to 180 days after the date of shipment). In this case, the importer must take on the discount charges. He will not be charged until the date on which the bill matures, which can be of benefit to exports when interest rates are low. As such, the exporter receives a sight payment as he has not granted a period of grace.

Even if a documentary credit does not include a confirmation instruction, the nominated bank can enter into a special agreement with the exporter in the form of a so-called silent confirmation. Such an agreement will set out the risks covered by the nominated bank.

Recommendation

If the exporter requires financing, an acceptance credit is the right instrument for larger sums. It is best if the time draft is drawn on UBS. Only a confirmed credit is appropriate for financing purposes. However, confirmation of such credits by UBS will depend on whether the issuing bank has at its disposal any unused credit lines with us. It is therefore advisable for the exporter to check with UBS whether the credit can be confirmed before entering into any major export deals. We recommend that the exporter incorporates the following payment clause in the agreement.

Payment clause

  • Unconfirmed credits: «...against documentary credit to be advised through UBS AG, Trade Finance, P.O. Box, CH-8098 Zurich (SWIFT UBSWCHZH80A), in our favour, available until (=date) with UBS AG, by acceptance of a time draft, drawn on the advising (nominated) bank at … days after the date of shipment, accompanied by the stipulated documents.» It must be pointed out that the advising (nominated) bank is not obliged to accept the draft.

  • Confirmed credits: «...against documentary credit, to be issued by a prime bank and confirmed by UBS AG, Trade Finance, P.O. Box, CH-8098 Zurich (SWIFT UBSWCHZH80A), in our favour, available until (= date) with the confirming bank, by acceptance of a time draft, drawn on the confirming bank at ... days after the date of shipment, accompanied by the stipulated documents.»

    => Financing instruments: the bill of exchange can be discounted by UBS following acceptance.

  • Exporter allows a period of grace for payment: "Acceptance commission is for the applicant's (buyer's) account. However, the relative discount charges are for the beneficiary's (seller's) account."

  • Exporter does not allow a period of grace for payment: "Acceptance and discount charges are for the applicant's (buyer's) account. Therefore, the beneficiary (seller) is to receive the draft amount as if it is drawn at sight."