Acceptance
On presentation of the documents called for under the letter of credit, provided they are in compliance with its terms, the beneficiary’s bank, which may be the advising bank, will send the documents and the draft to the accepting bank for acceptance. The accepted draft may be held by the accepting bank until it matures or it may be returned to the beneficiary at the beneficiary’s option, who may hold it until maturity or discount it at the best rate with any bank.
The chart below tracks the term draft and documents to the beneficiary’s bank which, in turn, presents these items to the accepting bank for acceptance.
Payment
On maturity of the accepted draft, the accepting bank will pay the beneficiary or the discounting bank and claim reimbursement from the issuing bank who will charge the applicant’s account and will remit the proceeds. The discounting bank would be any bank which had purchased the accepted draft at a discount.
The chart below tracks this procedure. The applicant (buyer) pays the issuing bank who in turn pays the beneficiary or discounting bank through the paying bank.
