Which buyer would not prefer to pay for a placed order after the goods receiving the goods? It is possible, and there is a name for it – open account payment/transaction, or OA payment for short. It poses almost no risks for the buyer (importer), but it is the highest risk option for the seller (exporter, supplier).
Open Account payment (OA payment) explained
What is an open account?
Open account, accounts payable, or cash against goods is a payment term when a seller (supplier, manufacturer) ships the goods and all the necessary shipping and commercial documents directly to a buyer who did not yet pay for the goods. It means the buyer pays a seller’s invoice at a future date.
Since it is a risky move for the seller, open account payment is typically used between established and trusted traders.
What is the payment time in the case of the open account?
When the buyer pays for the order is agreed between the two parties. It can be 30, 60, or 90 days terms from the date of invoice/bill of lading date. This period is called the credit period.
When can the buyer get the goods?
The buyer can receive the goods even before the payment is made. It all depends on the shipping terms.
Open account payment – step by step
- The buyer places the order and requests the open account payment.
- The seller agrees to the terms and sends the goods with the required documentation.
- The buyer receives the goods and makes the payment in due time.
What are the risks in the case of open account payment?
Risk to seller
- least secure payment term
- buyer can fail to make the payment
- the payment may be delayed due to various reasons
- goods may be withdrawn from customs
Risk to buyer
- most secure payment term
- the completed order is not correct (quality, quantity, shipping method, product)
- the order may be delayed or dispatched earlier than agreed
When should you use the open account?
Open account is the best payment term if:
- there is an established relationship between the seller and the buyer
- you want to avoid high banking fees
- you are sure that the payment will not be deferred/blocked
- the seller is positive that the company can afford to accept deferred payment, and the buyer will pay in due time
- the seller has credit insurance in case of losses
The risk for exporters is high, so the open account is recommended to be used between reputable and trustworthy partner companies and for smaller value shipments. The pro for the seller is that the company can attract customers in competitive markets.
If you want an alternative to open account terms, choose another payment option.