How Can Open Account Terms Help Me?
In order to be more competitive, businesses are increasingly exporting by offering open account terms--a method of international payment. Consequently, relying upon a letter of credit or requiring a foreign buyer to pay cash in advance can jeopardize a foreign sale if you do not offer a more flexible payment option. Alternatively, selling on an open account basis allows you to offer flexible payment terms to your foreign buyers, which in turn can allow you to better market your goods and services abroad and better position your business to win more deals. This can be advantageous if you are pursuing new customers in a highly competitive market abroad, or if you are seeking to expand your business with current customers.
What Are Open Account Terms?
To sell goods and services using open account terms requires an exporter to accept payment for exports from a foreign buyer at a time beyond the initial point of sale or delivery of a good or service— this predetermined point of payment is usually between 30 and 180 days after the foreign buyer has received the goods or services.
International buyers often prefer to purchase using open account terms because it allows them to receive goods or services weeks or months in advance of having to pay, especially if long shipment times are a factor. Open account terms can also allow foreign buyers to recuperate the cost for the good they are buying or ensure delivery of a service.
How Does Selling with Open Account Terms Work?
- You agree to sell goods or services to your foreign buyer after having established a time frame for the foreign buyer to pay you for the delivered good or service, let’s say 90 days.
- You deliver the goods or provide the services to your foreign buyer as agreed.
- 90 days or less after receiving the exported goods or services your foreign buyer pays you.
What Are the Risks of Selling Using Open Account Terms?
Exporting using open account terms can be risky, especially for first-time exporters or businesses operating on tight margins. It is important that as a business you assess the level of risk associated with any foreign buyer. Oftentimes it is advantageous for your business to vet foreign buyers by evaluating their established track record of paying for shipments on time, the stability of their home country, and their financial position.
To protect against foreign buyer nonpayment or unexpected political risks, many exporters choose to purchase an export credit insurance policy. Export credit insurance may be purchased through an insurance broker in the private sector, or when this is not an option due to the size of your shipment, costs, or destination country, through the Export-Import Bank of the United States (Ex-Im Bank).
If you would like to learn more about export credit insurance, or would like to speak with a broker, Ex-Im Bank has a list of dedicated insurance brokers who are qualified to assist your business purchase an export credit insurance policy.