The Dictionary of Financial Scam Terms: The truth vs. the scam


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Acceptance: Banker's Acceptance, Trade Acceptance


The Truth:

In general, an acceptance is a promise to pay.

The promise is made by the person or entity that will actually make the payment - the promissory - to the person or entity who will receive payment - the payee, or beneficiary.  (see PROMISSORY NOTE)

The promise-to-pay document is called a draft.  Payment of the draft will be made on a specified future date, so the draft is called a time draft.   To seal the promise, the promissory signs the draft and stamps or writes the word "Accepted" above his signature and adds the date on which he will pay the amount written on the draft.  

The draft has now been formally accepted by the promissory, and the commitment to pay the beneficiary on the due date has become a legal obligation.

If the acceptor is a bank, the acceptance is called a Banker's Acceptance.

A bank may accept a draft on behalf of either one of its customers or a note holder (payee).  In either case, the promissory then becomes obligated to pay the bank the amount financed in full with interest on or before the maturity date, and the bank becomes the primary entity obligated to pay the amount due to the payee.

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Banker's acceptances used in international trade fall under the regulations for a DOCUMENTARY CREDIT.

For the most part, banker's acceptances are used in the trade of goods.  An example would be when a German manufacturer needs to be paid by an American importer (or when an American manufacturer needs to be paid by an American retailer).  

The retailer or importer's bank, under certain financial conditions between the bank and its customer, accepts to pay for the goods.  Essentially, the bank is substituting its creditworthiness for that of its customer in order to assure the manufacturer that he will not be hung out to dry after shipping the goods.  The acceptance is then sent to the manufacturer.



ABC Foreign Cars is purchasing 3 German cars for its showroom floor.  ABC cannot pay for the cars in in advance and has not yet established a credit record with the German manufacturer.

On the other hand, ABC has an excellent credit record with its bank.  ABC goes to its bank and fills out the documents required for a draft to be made out to the German manufacturer.  The payment date of the draft is one week after receipt of the 3 cars, giving ABC time to perform a thorough inspection of the delivery.

ABC's bank knows from experience that ABC is good for the money (or perhaps the funds are deposited in the bank's escrow).  Therefore, ABC's bank accepts the draft on behalf of ABC and sends it on to the German manufacturer who is now assured that he will be paid for the shipment of cars.



If the acceptance is made by a finance company, then it is called a trade acceptance.

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An example would be a finance company affiliated with a manufacturing company that must make large purchases of parts, either domestically or overseas.  Since a finance company does not necessarily carry the same "comfort" weight as a bank, or in order to facilitate a series of payments and conditions, the acceptance may be backed by a LETTER OF CREDIT issued by a bank.

An acceptance is a NEGOTIABLE INSTRUMENT, provided that it meets the conditions of the UNIFORM COMMERCIAL CODE.

This means that the manufacturer negotiates the acceptance by endorsing it, and presents the acceptance to his bank for payment.  His bank will verify the validity of the acceptance by contacting the accepting bank.  If all is in order, the manufacturer is paid.

NOTE: It is extremely important to ensure that a banker's acceptance is valid.  In financial fraud, banker's acceptances have been made by banks that either do not exist, do not have the capital to provide the funds, or go bankrupt shortly after writing the acceptance.  Bank officers have been known to place an acceptance on drafts without doing proper research into the promissory, or through other ignorance or misdeed.  In some instances, bank stamps and officer's signatures have been stolen and forged.  A few phone calls to the accepting bank, the INTERNATIONAL CHAMBER OF COMMERCE (ICC), or your own bank can clear up the matter.


The Scam: 

The object of the swindler's game is to persuade the Beneficiary to endorse the acceptance over to him or one of his cronies, supposedly for investment.

This is achieved by guaranteeing the Beneficiary a quick level of profit far and beyond what he can ever hope to gain in the ordinary course of business.  

The swindler effects a "sleight of mind" by  repeatedly emphasizing the value of the profits to be gained, and by repeated emphasis on the safety of the program.  In this way the owner of the document is distracted from the ordinary and prudent questions. 



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