International trade payments
Open Account Payment Terms in International Trade
On open account (O/A) the seller ships the goods and sends the documents directly to the buyer, who pays after an agreed credit period. It is the most favourable term for the buyer and the riskiest for the seller, and is often backed by credit insurance, factoring or an SBLC.
- Exporter risk
- Risk level 5/5
- Importer risk
- Risk level 1/5
- Cost
- ●○○○○
- Applicable rules
- No ICC rules govern open account directly; rights and obligations depend on the sales contract, the governing law and, where factoring is used, rules such as the FCI GRIF.
How it works
- The parties agree a credit limit and credit period, for example 30, 60 or 90 days from B/L date or invoice date.
- The seller delivers under the agreed Incoterms® rule.
- The seller sends the invoice and documents directly to the buyer or via the forwarder, not through banks.
- The buyer takes delivery, clears customs and uses or sells the goods.
- The seller books the receivable and tracks it invoice by invoice.
- At maturity the buyer pays by T/T.
- The seller reconciles the ledger regularly; if payment is overdue, it starts dunning, an insurance claim or debt collection.
Parties involved
- Seller (Exporter): extends trade credit to the buyer.
- Buyer (Importer): receives the goods and pays at maturity.
- Both parties' banks: only execute the transfer and do not control documents.
- Factor or credit insurer (if any): buys the receivable or insures the risk of non-payment.
Exporter
Advantages
- More competitive, easier to win business with large customers.
- Simplest process and lowest bank cost.
- Receivables can be sold to a factor to obtain early cash.
Drawbacks
- Carries the full risk of late payment or non-payment.
- Loses control of the goods on delivery.
- Working capital tied up for the whole credit period.
- Collecting debts abroad is costly and slow.
Importer
Advantages
- Receives and can sell the goods before paying.
- No cash margin or bank credit line needed.
- Low cost and fast.
Drawbacks
- The price may be higher because the seller builds in its financing cost and risk.
- Must maintain a good payment record to keep the credit limit.
Cost
Bank charges are limited to transfer and crediting fees, as for a T/T. The real cost of open account lies in the financing cost over the credit period, the credit insurance premium (typically a rate on insured turnover that depends on buyer and country risk), or factoring fees and interest if the seller wants early payment.
Practice in Vietnam
Vietnamese exporters usually offer open account only to customers they have served for years or to international retail groups. Several banks in Vietnam offer export factoring, letting companies draw a large part of the invoice value upfront. On the foreign exchange side, export receivables must still be repatriated to an account in Vietnam, so overdue balances should be tracked and explained when needed. For imports on open account, the company submits the contract, invoice and customs declaration to its bank when paying at maturity.
Frequently asked questions
How does open account differ from deferred T/T?
In practice the two terms are almost the same: goods first, payment later by bank transfer. Open account emphasises that the seller grants a credit limit and manages a running ledger across many shipments.
How can I reduce risk when selling on open account?
Assess the buyer's credit, set customer limits, take out export credit insurance or ask for an SBLC, and use non-recourse factoring where available.
Should I use a sea waybill on open account?
Yes, it can work well, because the seller has already accepted shipping before payment and does not need original B/Ls to control the goods. A sea waybill speeds up release and avoids demurrage caused by waiting for documents.
This content is for general guidance and does not replace legal or banking advice for a specific transaction.
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