Advantages of Trade Acceptance to Buyer Among the advantages of trade acceptances to the buyer of merchandise the following may be mentioned: i. Any buyer who stands willing to accept the bills drawn by the seller tends to become a preferred buyer in the estimation of that seller. To have the sale closed by a negotiable paper is a great convenience to the seller; it also indicates higher business capacity on the part of the buyer. The buyer is therefore in a position to procure preferential treatment in his purchases by way of prices, terms, discounts, etc.
2. Signing an acceptance at time of purchase forces the buyer's attention to the terms of the contract, and he appreciates more consciously the obligation incurred. He will, therefore, be more likely to provide payment against maturity and will be a more careful and conservative buyer and a better merchandiser. In a short while he will find his credit title at banks has improved as a result.
3. Every buyer is also a seller. As a seller he will find the acceptance very beneficial. He cannot expect to enjoy these benefits and not reciprocate by accepting bills drawn upon him by those who sell to him.
4. The economies of the acceptance enable him to conduct his business on less capital and either to extend his business at lower prices or enjoy larger profits.
Advantages of Acceptance to Seller Among the advantages of trade acceptances to the seller of merchandise the following are to be noted: i. Trade acceptances are more liquid than accounts receiv able. The latter can be realized upon by hypothecation or assign ment, both of which are awkward and expensive and smack of poor business management. The trade acceptance "thaws" this "frozen" credit—gives it liquidity—for it can be converted at any time by the process of discounting to banks.
2. The seller possesses good commercial paper to offer his bank; trade acceptances are regarded by the banks as better than single-name paper; banks are inclined to offer better rates in the discount of trade acceptances; the federal reserve banks allow the member banks preferential rates on them. The cost of capital is therefore lower for the seller than if he financed by open account.
3. The acceptance indicates that a sale of merchandise has been completed; the buyer has acknowledged the correctness of the bill and goods; the onus of proof that the goods or bill were not correct will thereafter be upon the buyer. This presumption
is of some advantage in litigation. In practical business the inci dence of that onus of proof is not important, for it is the desire of sellers to create and maintain a clientele of satisfied customers, and they are anxious to adjust disputes amicably.
4. The acceptance reduces the cost of collections. The ac ceptance will be met at maturity with greater precision than the open account. It will likely be in the hands of some third party who does not have the mutual interests of buyer and seller, and who will therefore insist upon payment according to the terms of the paper and will not feel an obligation to renew. The buyer knowing this will make more adequate preparation to meet the paper when due. The seller's credit department will be relieved of much expense in handling dilatory collections, accounting, and general records.
5. Under the open account system it is necessary for the seller to finance the sales to all such buyers as do not take their discount by paying cash, and also to finance all sales for the Jo days before the discount privilege expires. The carrying of these accounts throws the burden of the financing on the seller's banks, usually in the reserve cities, and this is a serious matter for the seller because the volume of such accounts may be large, the accounts do not afford a liquid asset, and the risks are concentrated in one borrower rather than in many borrowers and acceptors as it would be if the financing was done by the local buyers. Trade acceptances could be discounted at the seller's bank or in the open market, and, except for the contingent liability of the indorse ment, the seller would be relieved of financing the buyer.
6. The seller on open account cannot depend upon his cus tomers taking their discounts and paying within io days, nor can he depend upon their paying promptly at the end of the 3o days or other sales' term. It is difficult for him to prepare a budget and plan his financing; to be safe he must borrow enough to constitute a margin above his calculated needs. He must also borrow extra funds to carry as balances with his banks in order to be sure of accommodation when needed. The provision of this added capi tal increases the cost of conducting his business. The use of acceptances gives greater dependability on due payments by buyers, makes possible a budget, and reduces the total amount of capital needed by the seller.