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Open Account: the basics

2 MIN READ
Oct 13, 2022

What is Open Account?

Open account means exporting on the basis of "ship now, pay later".

It is called different things in different countries. For example, it is also referred to as exporting on "DA terms" or "sale contract". Buyers can typically ask for 30, 60, 90 or more days credit after shipment before the commercial invoice is due.

Wait for the money on open account

Shipping open account means you wait for the money

Why do exporters agree to "ship now, pay later" terms?

Many years ago, most world trade (over 50%) was supported by bank guarantees, called letter of credit. Two things have happened:

So buyers have got used to working on open account and expect their exporters to offer it.

Open account benefits the buyer:

Working open account can be great for buyers:

And usually the buyer has the power in the relationship. If the buyer demands open account, exporters agree and then worry about how they get paid later.

The answer: get invoices approved at shipment

Without an approved invoice, the exporter has to trust that the buyer will pay later and runs the risk that the buyer delays payment, reduces the amount or may be even does not pay at all.

The exporter also has to find the cash to purchase the materials and pay his workers whilst he is waiting for the buyer to pay later and convince his local bank that the buyer can be trusted.

In many countries, exporters are not allowed to run these risks and governments demand that their banks control the export of goods to make sure that buyers pay cash before shipment.

Buyers that use the PrimaTrade platform have access to an automated 3-way system that gets invoices approved at shipment aginst shipping documents - see more here.

This enables the exporter to manage his risks and get paid at shipment. Open account becomes safe for exporters because the approval can be given before control of the goods is handed over - solving the trust issue. And the invoice approval can lead to cash at shipment coming from:

These methods are natively supported by the PrimaTrade platform.

How can I find out more?

There are lots of materials available to understand how to work better with open account trades.

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