What Is a TAD or Trade Acceptance Draft?
Trade Acceptance Drafts (TAD) are a type of Time Draft commonly used in the Sale of Goods. TAD’s are post-dated payment drafts given by a buyer to its supplier. The buyer who the seller (or his funder) is extending credit to is the drawee. The seller or his lender/assignee is both the drawer and the payee. WIP Funding can extend trade credit via a TAD or Trade Acceptance Draft.
A Trade Acceptance Draft is a document that acknowledges that a debt exists. Upon its execution, it reflects that credit has been extended to the buyer and the seller. This bill of exchange is accepted as payment by the purchaser. The document will have a future payment date listed on it.
An example would be when a large, tier 1 automotive supplier buys bearings from our supplier client. When tier 1 requests bearings, the supplier creates a draft ordering the tier 1 to pay within 75 days. When the tier 1 signs the draft, they are obligated to pay the debt. If the supplier needs money before the 75 days is up, they can sell the Trade Acceptance Draft to WIP Funding.
This form of financing has been popular in Europe for quite some time. The Federal Reserve Act of 1913 encouraged this form of financing in the US. In addition, the American Acceptance Council in 1919 was created to further educate the business community on this form of credit.
Trade Acceptance Drafts from WIP Funding strengthens the buyer’s credit with the seller once the draft has been paid. These types of transactions are preferred by sellers. In addition, the purchaser does not carry any obligation until they receive the goods. This means there is less risk to the buyer and the seller.