There are many ways to pay and get paid in international trade. Some types of payment are more beneficial for the buyer rather than the seller, or backwards.
Which one is the best for your business?
One of the top 5 most used internationally payment methods is the Open Account Payment Method.
If you haven’t seen our post about the Advance Payment method, you can find it here.
OPEN ACCOUNT PAYMENT
In an open account method, the importer is trusted to pay the exporter after receipt of goods. The seller ships the goods to the buyers with a credit period attached. This is usually in 30-, 60-, or 90-day periods, during which the buyer must carry out the full payment.
Under this method, the exporter sends the invoice and other documents relating to the transfer of title and possession of goods directly to the buyer (importer) and on receipt of such documents the importer remits the amount involved immediately. In case a credit period is allowed the importer will make the payment at the expiry of the credit period. This method is very simple and avoids many complications and additional charges. The entire risk, in this case, is on the exporter.
Open Accounts (also known as Accounts Payable) are proven to be an extremely attractive option for buyers especially in terms of cash flow. On the other end of the spectrum, however, sellers are faced with high risks. Open Accounts are usually only recommended for trustworthy and reputable buyers, for buyers and sellers who have an established and trusting relationship, and/or for exports with relatively lower value to minimize risk.
Pros and Cons of Open Account Payment Method
Illustration by Tosk Global Ventures
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