What is the difference between a banker's acceptance and a commercial bill
Introduction: The World of Financial Instruments
Hello everyone, and welcome to our discussion on the difference between a banker's acceptance and a commercial bill. In the realm of finance, various instruments facilitate transactions and credit. Today, we'll focus on these two instruments and shed light on their distinctive features.
Defining Banker's Acceptance
A banker's acceptance is a time draft, typically used in international trade. It involves a bank guaranteeing payment to the seller on a future date.
This guarantee, often in the form of a stamp or signature, adds credibility to the transaction. It assures the seller that they will receive the agreed-upon amount, even if the buyer defaults.
Banker's acceptances are commonly used when there's a time gap between the delivery of goods and the payment.
Exploring Commercial Bills
On the other hand, a commercial bill, also known as a trade bill or a bill of exchange, is a written order from the seller to the buyer, demanding payment. It is a negotiable instrument, meaning it can be transferred to a third party.
Commercial bills are often used in domestic trade, where the buyer has a specified time, known as the 'term,' to make the payment. These bills are legally binding and offer a level of security to the seller.
