PECIMEN The following documents complete sets unless otherwise stated) must be presented: Invoice Insurance: Certificates issued by Insurance Companies covering marine and warrisk. Unless "on board" Bills of Lading are presented, insurance must cover steamer named in Bills of Lading "and/or following steamer". All documents are to be surrendered to us upon acceptance. Drafts must clearly specify the number of this advice, and be presented at this Company on or before March 31, 1923. This advice, which is revocable at any time without notice, is for your guidance only in preparing documents and conveys no engagement or obligation on our part or on the part of Societe Generale, Paris. The provisions painted on the back hereof are incorporated as a part of the advice in so far as they are not inconsistent with the terms above stated. Any amendment of the terms hereof must be in writing over an authorized signature of this Company. Yours very truly, The terms indicated herein must be strictly observed. If impossible to comply with same, please communicate with us and/or the consigee before making shipment with a view to obtaining modification of the conditions to .conform to the terms of sale. Assistant Manager Foreign Drvision 887 5 1-23 Advice of "authority to draw." Full details are given the exporter as to the preparation of the documents which are to accompany the bill of exchange which he is given authority to draw. The advice is revocable. English and other merchants frequently make such arrangements for their purchases in the United States. If the foreign bank instructs some American bank to negotiate such drafts either with or without recourse on the drawer in case of non-payment by the drawee, it is called an "authority to negotiate." 154. Drafts against stored goods and securities. — When goods which are stored in a reputable warehouse are sold, the seller draws a draft, attaches the warehouse receipt as security, and sells it, or sends it through his bank for collection. Since the warehouse man is not responsible for fire, there is not adequate security unless the risk is covered by fire insurance. The manner of collecting for securities which have been sold at home or abroad is to draw a draft and attach the certificates. These, especially if bonds or warrants, make first-class security, and the draft is readily marketable. These securities must be assigned and be accompanied with a power of attorney executed in blank. The signature to the assignment and power of attorney "must correspond with the name as written upon the face of the certificate in every particular without alteration or enlargement or any change whatever." 1 155. Cash against documents. A great deal of American foreign selling is done on the basis of cash against documents at the port of shipment. A manufacturer in the United States may be unwilling to sell except for cash. A Chinese buyer willing to pay cash does not wish to pay until he knows that the right goods are on the way. This buyer in Hong Kong arranges with a New York banking house to pay the seller's draft provided the shipping documents are attached and goods of a certain quantity and character are specified. In important cases the bank will employ an agent to inspect the goods before shipment. 1 New York Stock Exchange, Requirements for Listing, p. 5. ACCEPTANCES IN DOMESTIC TRADE 215 The bank confirms the credit to the seller, who then ships. the goods as directed, and sends his sight draft with the documents attached through his own bank to the New York bank for payment. If the maufacturer is located in New York City, he delivers the documents by messenger and gets the cash. A similar arrangement may be made for part payment, or where a cash deposit is made in advance. 156. Trade acceptances in domestic trade. The banking laws of the United States give distinct advantages to bills drawn on a purchaser of goods by a seller. A member of the Federal reserve system or a state bank in most The obligation of the acceptor hereof arises out of the purchase of goods from the drawer. this bill payable at any bank, banker or trust company in the United States which he may designate. The drawee may accept The above form of a trade acceptance was approved by the American Acceptance Council. states is not limited in the amount of bills it can discount for one customer if they are "drawn in good faith against actually existing values." The reason is that such bills are two-name paper and usually show on their face that they were used in genuine commercial transactions. To be eligible for rediscount such a bill at the time of discount must have a maturity of not over ninety days, and if its face does not show that it was drawn by the seller of the goods on the purchaser of the goods, it must be accompanied by satisfactory evidence to that effect. It is there "The fore the practice to print on the face of the bill, obligation of the acceptor of this bill arises out of the purchase of goods from the drawer." 2 The time of maturity for drafts drawn for agricultural purposes may extend as much as nine months from the date of discount. Unless the bill is documentary the seller must be certain of the credit of the buyer, else he will have to pay the bill, and even with documents there will be the costs of sale, or return and considerable loss. The banker who discounts the bill must be as certain of the credit of the drawer as if he were making a loan (for a number of bills the maximum credit need not be nearly so great), for the drawer is guaranteeing a loan for the buyer. When the banker indorses the bill he can readily resell it, and since he gives it additional security, he can sell it at a profit, and recover his funds for other loans. The trade bill should grow in use in the United States because often the seller, or the buyer, can borrow more cheaply in that way than in any other. If the seller shares his gain with the buyer, the latter will like it; but the buyer who accepts a draft must be more careful than one who buys on open account, because his future credit is at stake. "The trade acceptance enables business to be transacted at a smaller operating cost. It reduces the amount of losses through bad debts. It affords adequate relief from the tendency to take so-called cash discounts after their legitimate term has expired. It enables the seller to dispose of his goods to better advantage, because it affords him increased and improved facilities for financing his business through the possession of available and liquid credit. Each buyer is himself a seller; each seller is himself a buyer. Therefore the trade acceptance benefits both in an equal degree." 13 2 Federal Reserve Board, Regulation A, Series of 1922. 3 American Exchange National Bank of New York, Acceptances. TRADE BILLS IN FOREIGN COMMERCE 217 The seller uses the trade bill in his terms of sale along with the option of the cash discount. When the goods are shipped the seller sends with his invoice his draft on the buyer for the face of the sale payable sixty days after date (or sight), and offers a discount if paid in ten days. If the buyer chooses to pay cash he can do so, if not he can accept the draft and return it to the seller. The seller may hold the acceptance until maturity approaches when he can use his bank to collect it, or he may at any time discount it, the rate usually becoming lower the longer he can afford to hold it in his note and acceptance file. The use of trade acceptances does not increase as rapidly as many desire. Habits of doing business are hard to change. The open account has its conveniences, particularly when numerous small invoices are involved. Loans by buyers from their own banks to take discounts offered for cash have decided advantages for both buyer and seller. In many cases certain of the advantages claimed for trade acceptances have not materialized. 157. Trade bills in foreign commerce. - Practice in using bills for foreign sales and purchases is similar to that for domestic, except that more documents are necessary and the conversion of money from that of one country to that of another is necessary. Lack of knowledge of general conditions, distance away, different language and customs, prevent as general a use of private credit as in home transactions. Trade bills are therefore not so extensively used except between houses that have the highest credit standing and are well known to each other. Even then the market for their sale may be restricted. Bills drawn on banks are in demand. Competition forces up the price and makes the interest rate small; but the discount proposed on some trade bill may be so large as to make it more profitable to the drawer to send it for collection, and secure funds, if he needs them, either by selling |