Money & Finance › Payments & money movement › Documentary collections: banks swap shipping papers for payment
Bills of exchange (drafts) and banker's acceptances
· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
A written order by one party telling another to pay a set sum, now or later; a banker's acceptance is one a bank has guaranteed.
See it on the Money & Finance map →How it works
The drawer (say an exporter) orders the drawee (the importer) to pay the payee at sight or on a future date. Italian merchants used them from the 1200s to avoid carrying coin across Europe. When the drawee writes 'accepted', it becomes legally bound. If a bank accepts, it is a banker's acceptance: a bank IOU that investors buy at a discount in the money market. The US acceptance market, which the Fed nurtured from 1913, peaked in the 1980s and has nearly vanished.
Why it matters
They are the ancestor of checks and of money-market paper, and still the backbone of documentary collections and forfaiting.
Facts, rules and data
Surviving medieval merchant records such as the Datini archive in Prato, the UK Bills of Exchange Act 1882, UCC Article 3, and Federal Reserve data on acceptances outstanding.
Debates and risks
Historians debate how much bills of exchange served to disguise interest and dodge church bans on usury, rather than just to move money.
Connections (2)
▸Bills of exchange (drafts) and banker's acceptances are the legal ancestors of Checks: how a personal or business check clearsFact, law or data
The connection
A check is legally a bill of exchange drawn on a bank and payable on demand: the depositor (drawer) orders the bank (drawee) to pay the payee. London goldsmith-bankers adopted the form in the 1600s for local payments, and the rules on endorsement, acceptance and dishonor came straight from centuries of bill law.
When and why
Goldsmith-bankers in 17th-century London; codified in Britain's Bills of Exchange Act 1882 and in Article 3 of the US Uniform Commercial Code.
How we know
The 1882 Act defines a cheque as a bill drawn on a banker payable on demand; UCC 3-104 defines a check as a draft drawn on a bank.
Debates and risks
When the first true check was written is debated; a 1659 London example is the oldest known English one, with earlier Italian and Dutch precedents.
▸Documents against acceptance (D/A): sign a draft, pay later requires the buyer to accept Bills of exchange (drafts) and banker's acceptancesFact, law or data
The connection
The collecting bank presents a time draft drawn by the exporter on the importer. By writing 'accepted' with a signature and date, the importer becomes legally bound to pay on the due date. The accepted draft, called a trade acceptance, can be held to maturity, sued on, or sold.
When and why
Under bills-of-exchange law: Britain's 1882 Act, the 1930 Geneva conventions used across Europe and East Asia, and UCC Article 3 in the US.
How we know
Those statutes, and URC 522 rules on presenting drafts for acceptance.
Debates and risks
Whether a protested draft really speeds collection in foreign courts as much as the law suggests.