Open Account

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Russian: Открытый счет

General Provisions

In an Open Account transaction, the exporter conducts international business in a manner similar to the way it conducts business domestically[1]. The exporter just sends an invoice to the importer along with the shipment and trusts the customer to pay within a reasonable amount of time, commensurate with the credit usually granted in the country in which the importer operates, usually thirty to ninety days. It is essentially the conceptual opposite of Cash in Advance, as the exporter shows complete trust in the importer and ships the merchandise without any guarantee that it will be paid. The only recourse in case of non-payment is legal action in the importing country, a time-consuming and expensive process that exporters rarely undertake. This open account method should be reserved to established customers, or customers with whom the exporter expects to have an ongoing relationship. It could possibly be extended to new orders from large companies and/or companies for which commercial credit data is available, and whose credit rating is excellent. This open account method should be reserved to established customers, or customers with whom the exporter expects to have an ongoing relationship. It could possibly be extended to new orders from large companies and/or companies for which commercial credit data is available, and whose credit rating is excellent[2].

Principal Flow Chart of Open Account Payment with Components of Export Credit Risk Management

OA E.jpeg


  • 1) After having the sale contract concluded, the exporter (A) ships goods to the importer(B).
  • 2) In parallel with delivering goods under the said sale contract, the exporter (A) issues the appropriate invoice to the importer (B).
  • 3) Having received the said goods, the importer (B) has a right to defer a payment for a stipulated period (usually, from 30 to 90 days) and then transfers the payment under the said sale contract to the exporter (A). (The case of non-acceptancy under non-conforming to quantity/quality terms is excluded from consideration herein.)

It is clear that open account payment arrangements could be considered as very risky for exporters involved into this kind transactions. However, on the one hand, the open account terms are highly risky for exporters, but on the other hand, in order to compete in competitive markets exporters have to offer these open account terms to attract importers. Therefore, to resolve this contradiction, exporters have to search for export credit protection means. A pair of such means is presented below[3]:

  • EXPORT CREDIT INSURANCE – this techniques provides protection against commercial risks [4] and political risks [5] . It allows exporters to increase sales by offering liberal open account terms to new and existing customers. Insurance also provides security for banks that are providing working capital and are financing exports.
    • Credit insurers and their types - The credit insurer is both a "protector" and an agent for growth: a protector of profit, cash flow, balance sheet and the customer base; an agent for growth in developing trade with existing or new buyers markets[6]. There are two basic types of international credit insurers: public and private.
      • Public insurers, well-known in U.S., include the Eximbank[7]. [Banks with similar insurance functions exist practically in all countries[8].]
      • Private insurers frequently market their services through the intermediary of specialized credit insurance brokers. These brokers advise exporters on how to choose from amongst the wealth of insurance services and policies available. In the event of a claim, the broker may assist the exporter in preparing necessary documentation and dealing with the insurance company. Credit insurers help exporters, not only by reimbursing them for losses sustained from non-payment, but also by helping them set up proper credit management procedures, Insurers may provide exporters with credit data on prospective customers, suggest appropriate credit levels, and supply information on a foreign country's economic and political risk. Some insurers offer collections services for overdue accounts.
  • EXPORT FACTORING - Export factoring is a complete financial package that combines export working capital financing, credit protection, foreign accounts receivable bookkeeping, and collection services[9]. Export factoring is offered under an agreement between the factor and exporter, in which the factor purchases the exporter’s short-term foreign accounts receivable for cash at a discount from the face value, normally without recourse. The factor also assumes the risk on the ability of the foreign buyer to pay, and handles collections on the receivables. Thus, by virtually eliminating the risk of non-payment by foreign buyers, factoring allows the exporter to offer open account terms, improves liquidity position, and boosts competitiveness in the global marketplace. Factoring foreign accounts receivables can be a viable alternative to export credit insurance, long-term bank financing, expensive short-term bridge loans or other types of borrowing that create debt on the balance sheet.
    • A factor, or factoring house, is a bank or a specialized financial firm that performs financing through the purchase of invoices or accounts receivable.
    • Chain of events in an export factoring [10]:
      • 1) Importer places an order with the exporter.
      • 2) Exporter gives the details of the transaction to the factor.
      • 3) Exporter dispatches the goods to the importer and sends an invoice well to pay the amount on due date to the factor.
      • 4) Exporter submits the copy of invoice to the factor.
      • 5) Factor pays the amount to exporter.


  1. David, P.A., Stewart, R.D. International Logistics: The Management of International Trade Operations – Cengage Learning, 2010 – p.142.
  2. ibid.
  3. Trade Finance Guide: A Quick Reference for U.S. Exporters – International Trade Administration, U.S. Department of Commerce, Washington, April, 2008 - p.12. -
  4. Commercial risks include bankruptcy, receivership, and other kinds of insolvencies, as well as protracted defaults caused by cash flow problems, balance sheet issues, bad faith, market demand, currency fluctuations, natural disasters, or general economic conditions in your customer's country or abroad. - Export credit insurance -
  5. Political risks include currency inconvertibility, foreign exchange controls, transfer risks, war, strikes, riots, revolution, confiscation, expropriation, nationalization, embargoes, trade sanctions, and changes in import or export regulations. – ibid.
  6. Export credit insurance –
  7. The Export-Import Bank of the United States (Ex-Im Bank) is an independent, self-sustaining agency with an 80-year record of supporting U.S. jobs by financing the export of American goods and services. - The Facts about Ex-Im Bank -
  8. e.g., Export-Import Bank of Malaysia -
  9. Export Factoring -
  10. International Trade Financing and Risk Management Manual - Apparel Export Promotion Council - - pp. 10-11
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