Legal Definitions - acceptance credit

An acceptance credit is a type of letter of credit that is honored by the issuer accepting drafts drawn under it. It is also known as a time letter of credit. A letter of credit is a commercial instrument issued by a bank at the request of a customer, which guarantees payment to a third party (beneficiary) as long as certain conditions are met.

For example, if a company in the United States wants to purchase goods from a supplier in China, they may use an acceptance credit to ensure that the supplier will be paid once the goods are delivered. The supplier can present drafts to the bank, which will be accepted and paid by the customer's bank at a later date.

Another example is when a construction company needs to purchase materials from a supplier but does not have the funds to pay upfront. They can use an acceptance credit to guarantee payment to the supplier once the materials are delivered and the work is completed.