Acceptances Relieve Seller From Necessity Of Selling Or Assigning Open Book Accounts

A general practice among business men who conduct their transactions under the open book account method, and who find themselves in need of funds, is to realize upon their open accounts. To effect this purpose, it becomes necessary for them to "sell" or assign these accounts. During the past decade, there have come into existence numerous commission bankers and commission houses, which make a specialty of buying "accounts receivable," that is, open book accounts, and make advances thereon to the seller.

Commercial bankers and commission houses engaged in this kind of business usually charge a much higher rate of interest, or discount open book accounts at a much higher rate than the customary charge for discounting trade acceptances. The operation is, therefore, a costly one, and is unprofitable to the seller.

Should the seller who holds trade acceptances find himself in need of funds, he may acquire same through their discount.

Acceptances Permit Operation Of A So-Called "Budget System" Of Financing Business

Governments, as well as the larger commercial and financial organizations of the country, have learned from experience that the safest way to conduct their financial affairs is on the plan of a budget, that is, on an income and expenditure schedule. The seller, for instance, is able to calculate the amount of money he will need for disbursements during a certain period. Likewise, in order to meet these necessary disbursements, he will apply against them his possible receipts. On account of the better commercial standing and conveniences afforded by the acceptance, the seller is able to calculate as nearly as possible the amount of money he will require, much more efficiently than is possible under the open account method. As a result, it would eliminate the necessity of borrowing in excess.

Acceptance Establishes Evidence Of Completed Transaction

The trade acceptance in the hands of the seller, in place of the open book account furnishes the best evidence of a completed transaction in merchandising, and places the burden of proving the correctness of the details connected with the transaction upon the buyer. It enables the seller effectively to disprove of the possible necessity of subsequent proof of the legal status of the transaction.

Trade acceptances exhibit for inspection the highest class of accounts. The necessity of accepting a seller's draft drawn upon the buyer will cause the latter to make every possible investigation of the correctness of the transaction beforehand, which will diminish to a great extent any inconvenience, as frequently arises under the open book account system.

Acceptance Effects Economy In Time And Expense

The business houses and banks which have used the acceptance and have studied its advantages from every angle, testify to the fact that it is the least expensive of all other forms of settlement, from a standpoint of economy in time and expense, and as regards cost of collections, handling of accounts, accounting and general recording. The seller, when he receives the acceptance from the buyer treats the draft as a settlement of the open book account and transforms it into a liquid asset with negotiable value.