What Is an Accepting Bank?

An accepting bank is a bank that accepts bills of exchange and becomes legally obligated to pay off the bills when they mature. This is similar to the role of an advising bank, but advising banks are found only outside the customer's country or region, while an accepting bank may be domestic or international. A bill of exchange, akin to a check, is a written notice saying that a certain amount of money will be paid to the customer on a certain date. To ensure the customer will be paid, the bank guarantees all bills of exchange by endorsing them.

Accepting banks are any banks that will take a customer’s bill of exchange and promise to pay the indicated amount at a later time. To assure the customer that the bank will pay the bill of exchange, all notes are signed — or endorsed — and the bank accepts all legal obligations. These bills do not gain interest, and the bank will not promise any; only the amount written on the bill will be paid to the customer at the time of maturity.

Bills of exchange are notes that promise one party that another party will pay a fixed amount without conditions or reservations. The most common bill of exchange is a check, but there are many other bill types, depending on why one party is paying another. The only negotiable aspect of a bill is its maturity date. A fixed date means the bill must be paid on a certain date, whereas a negotiable date means the customer can have the bill paid whenever he or she desires.

An accepting bank and an advising bank are nearly the same thing, but they differ in how they operate internationally. An advising bank is meant for customers who are in a region or country outside the advising bank's region or country. These banks only accept international customers because, aside from checks, bills of exchange also are commonly used for international trade. An accepting bank accepts these same responsibilities but also is able to take bills of exchange from domestic clients.

Another reason why it is called an accepting bank is because of how the bank accepts bills of exchange. Aside from takings bills of exchange from customers, an accepting bank also will accept letters of credit from other banks. After accepting the letter, the bank honors the financial request by paying the fixed amount specified in the letter of credit.