Open account payment terms are widely used in international trade – over 80% of global transactions rely on them. They allow buyers to receive goods and pay later, typically within 30 to 180 days. While this method benefits buyers by improving their cash flow, it exposes sellers to serious risks, including non-payment, late payment, and legal hurdles in foreign countries.
Key Takeaways:
- Risks to Sellers: Non-payment, buyer insolvency, delays, currency fluctuations, and political instability.
- Legal Challenges: Enforcing payments across borders is costly and time-consuming due to differing legal systems.
- Protective Measures:
- Conduct thorough credit checks on buyers.
- Use clear, enforceable contracts specifying payment terms and legal jurisdiction.
- Consider Accounts Receivable Insurance (ARI) to cover up to 90% of potential losses.
Sellers can reduce risks by combining buyer vetting, robust contracts, and ARI. These steps ensure smoother transactions and safeguard cash flow, even in unpredictable markets.
Export Payment Terms – Methods of Payment in International Trade & their associated risks
Legal Risks of Open Account Payment Terms in Exports
When U.S. sellers send goods with open account payments, they face many legal risks. These risks can cause big money losses. These risks are not just everyday worries – they often need costly legal steps that are hard to handle.
Non-Payment and Late Payment Issues
Not getting paid is one of the top legal risks with open account deals. With no bank in the middle, sellers trust papers and bills. But in a fight over the money, these may not be enough.
Late payments make things worse. About 40% of sellers say buyers take too long to pay. This messes with cash flow and can hurt the way the company runs. Delays can last 2 to 6 months, and getting help from court in other lands costs a lot and may not work. To get money from buyers in other lands, sellers may need to pay local lawyers, change papers into new words, and learn new laws. All this costs much more and takes time. Slow payments make it hard for sellers to make buyers pay them when the buyers are far away.
Problems Enforcing Payment in Other Countries
Getting paid from buyers in other lands brings its own trouble. Each place has its own rules about deals and courts, so what works in U.S. courts might not work in other lands. The International Chamber of Commerce says almost 40% of global trade runs into money problems due to these rule differences.
Take this case: In 2023, a U.S. seller could not get $500,000 back from a buyer in Brazil who did not pay. Brazil has tough rules about money and court cases take a long time, so the seller did not get the money soon. Big words and having to change papers into new languages made it even harder. A check by Euler Hermes found 30% of sellers go through the same problems when trying to get paid by foreign buyers because of all these legal roadblocks.
Buyer Bankruptcy or Insolvency
If a buyer in another land goes broke or says they are bankrupt, U.S. sellers might not get paid. Laws in the buyer’s land may limit what sellers can ask for and can make things take even longer.
How fast these cases finish depends on the land. Some places close cases fast, but some take years, keeping sellers stuck and unsure.
Political and Regulatory Risks
Changes in government or rules can stop payments even if buyers want to pay. For example, rules about money might keep cash inside the country. Wars, fights, or big changes in government can stop business, so no money gets paid.
New rules about trade, taxes, or imports can slow down or stop payments, too. These problems make things more unsure and risky for sellers.
"Accounts Receivable Insurance protects your company’s receivables from non-payment due to bankruptcy, slow payment, and political risks." – Accounts Receivable Insurance
Given these problems, sellers must act early to keep safe. Check if buyers can pay. Write simple rules that both sides can follow. Use easy tools to lower risk, like insurance for money you are owed. These steps help you lose less money. Plan well and watch for risks, so you can handle open deals in a smart way. Care and strong steps matter when you try to get paid from far away. Good handling makes things work and keeps you safe, even when deals are hard. Work smart, plan ahead, and check things at each step.
How to Lower Legal Risk
You can do some things on your own to face legal risks as a U.S. seller. Good prep and smart ways to check for risk can help keep you safe from big legal problems.
Check the Buyer’s Money and History
Begin by making sure your buyer is real and able to pay. Use credit checks from world credit firms to see how well the buyer pays bills and handles money. Look up court records, see if the company is set up right, and find out who owns it. These steps help tell if the buyer is honest and not a risk.
For example, in 2021, a U.S. company sold electronics on trust, without fully checking the buyer. They got less than 20% of a $250,000 bill back after a court fight. Using credit firms that share info about world markets will help you spot trouble before it hits. If you take time to learn about the buyer’s money, you are less likely to deal with late or missed payments. These checks also help make better deals and set strong rules in contracts.
Make Simple and Strong Deals
A clear deal helps both sides and stops most fights. Plain words make it easy to know what each side must do and help avoid costly problems. Say when and how cash is due, what kind, and what will happen if the buyer pays late.
If you sell out of the country, put in rules for fixing problems. Say which country’s laws will be used, and how you will settle fights. Name which group, like AAA or ICC, will help if you must fight in court. Many world trade fights start because deals are not clear, says the Chamber of Commerce. To keep things simple, put in shipping terms to say who ships, and who bears risk at each step. These steps let you look out for your money and your rights.
Get Cover for Your Bills
Accounts Receivable Insurance, or ARI, keeps your business safe from missed payments. This cover can pay you if the buyer does not pay, goes broke, or if things go bad in their country. ARI often pays up to 90% of what you are owed. For example, in 2023, a U.S. seller used ARI on $1 million of goods sold to a risky country. When the buyer went broke, the seller got back $900,000, which was most of what was owed.
You can choose ARI for each market, buyer, or sale, and get as much cover as you need for each case. This keeps you safe and helps you trade with less worry.
With these steps, you can lower risk, guard your cash, and work with other firms with more peace of mind.
"ARI also monitors buyer health for early risk signals." – Accounts Receivable Insurance
One main good thing about ARI is that it keeps checking how buyers are doing. It gives a heads up if there are problems coming. This means you can change how you give out credit soon, before things get worse. Firms that use ARI say they are able to give 30% more credit to new buyers. This helps them look for more places to do business and get bigger. The price for ARI is from one half of one percent to three percent of sales that are covered. This fee is small if you think about how much you could lose if someone does not pay you back. ARI also helps with making claims, so it is easy to get your money if there is trouble. It takes away many hard parts of getting paid when buyers are in other countries. ARI helps you deal with troubles that may come up, like trying to make sure people pay or if they go broke. This makes ARI a useful thing to have if you want to lower risk and keep your business safe.
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Payment Method Comparison for Export Transactions
Open Account vs Other Payment Methods
When you sell things to other countries, you can pick from four main ways to get paid. Each one comes with its own mix of risk, cost, and how tricky it is to use. Knowing how these ways are not the same will help you pick the right one for each sale.
Open Account Terms let buyers get what you sell before they pay. They usually have 30 to 180 days to give you money. This way helps buyers save at first, but it makes things risky for sellers. If buyers do not pay, the seller may wait a long time and fixing the problem can be hard, often needing help in other places. Even with these risks, more than 80 out of 100 sales between countries use open account terms.
Letters of Credit (LC) are safer. Under an LC, the buyer’s bank promises to pay if the seller shows the right papers. This cuts risk, but costs more, with an extra fee of about 1% to 3% of the sale. There are also more steps and papers to handle.
Documentary Collections give a middle ground in risk and price. In this way, banks help swap shipping papers and payment. Two main kinds are Documents Against Payment (D/P), where buyers must pay before they get the papers, and Documents Against Acceptance (D/A), where buyers promise to pay later by signing a paper called a bill of exchange.
Cash in Advance is the safest for sellers because they get money before sending goods. But buyers do not like this way as much, so it is used in less than 10 out of 100 sales between countries.
Here is a quick look at these ways:
| How You Pay | Law Risk | Cost | Safety | How Easy to Get Paid |
|---|---|---|---|---|
| Pay Later (Open) | High | Low | Very Low | Hard, more so in other lands |
| Bank Letter | Low | High (1-3%) | Strong | Easier since bank helps |
| Bank Collects Paper | Medium | Mid | Some | Can change based on way used |
| Pay Before (Cash) | Very Low | Very Low | Best | Get money up front |
This table shows what sellers give up with each way to get paid. When sellers use Letters of Credit, banks promise to pay after rules are met, so sellers feel safe. Documentary Collections help a bit, but they do not give as much safety as Letters of Credit. Open account is the most risky for sellers, but it is still liked because it helps buyers and makes deals easier.
Pick how you get paid based on if the buyer pays on time and how strong the market is. If you trust the buyer and the market is good, open account can work well. If the buyer is new or you see more risk, Letters of Credit or cash first can help keep your money safe.
Many sellers now use Accounts Receivable Insurance to stay safe. This insurance pays some of your money if the buyer does not pay, loses money, or if there are big problems in the country. By using this help, you can let buyers pay the way they want, but your money is still safe. This helps you grow and keeps your business strong, even when buyers cannot pay what they owe.
Latest Moves and What We Learn
The way people pay for goods has changed a lot. Now, most deals for buying and selling between businesses in other lands use open account terms. More than 80 out of 100 deals work this way, showing that buyers want more ways to hold on to their cash longer. But, while this is good for those who buy, it puts more risk on sellers in the U.S. They have to try to sell at good prices but also keep their money safe. With things changing so fast, these sellers have new problems. The big one: buyers not paying what they owe.
A report from the U.S Export-Import Bank showed that in 2022, cases where buyers did not pay went up by 12 out of 100. Most of these bad deals were with buyers from new and growing markets. Since this issue got worse, more sellers are buying extra help, like trade credit insurance. This whole market went up by 8 out of 100 each year. Sellers now know that old ways to check risk will not work most times. That is why lots of sellers now use smart new tools, like AI or codes that let them check credit faster. These tools help sellers keep track of buyers and know who can pay on time.
Case stories help us see these risks and how sellers deal with them.
Lessons from Real Stories
True stories show us the dangers of using open account terms and how some sellers keep safe. In one story from 2021, a U.S. company shipped smart tools to a new buyer in Brazil. They agreed the buyer could pay in 90 days but did not look well into the buyer’s credit. When the buyer did not pay a $250,000 bill, the seller had to spend a lot of money in court and had to wait a long time to try to get the money back in Brazil.
These stories teach us to check buyers well before you sell, use better tools to watch who pays, and have backup plans if things go wrong. As more sellers use open account terms, it is more important than ever to use smart ways to lower risk and keep your funds safe.
"In today’s volatile economic environment, exporters must be proactive in managing their credit risks, especially when using open account payment terms."
– John Smith, Senior Risk Analyst, Euler Hermes
This case shows how risky it can be when you do not check your buyers well enough. It also shows how hard it is to get paid when people live in other lands. After this costly event, the seller decided to use export credit insurance for all sales to other lands that are paid later.
Other cases from 2022 and early 2024 show that using accounts receivable insurance (ARI) helps cut losses. For one, a maker of cloth in the United States sent goods worth five hundred thousand dollars to a buyer in Turkey. The buyer went broke before they could pay. The maker’s policy paid back ninety percent of the loss. In another case, ABC Manufacturing got eighty percent of unpaid bills back by using ARI after their buyer in a troubled place did not pay. These cases show that with the right cover, it is easier to not lose as much money when problems come up.
"The use of accounts receivable insurance has become a critical component for exporters looking to safeguard their cash flow and minimize risks associated with open account terms."
– John Smith, CEO of Accounts Receivable Insurance
Here are ways ARI helps lower money risks. Exporters who use trade credit insurance see fewer missed payments. In fact, a study showed they have 30% less missed payments than those without such help, as found by the International Trade Centre in 2025.
Money troubles in the world make risk harder to handle. For example, there was a U.S. machine seller in 2024 who lost all his money when a buyer in Venezuela could not pay a $500,000 bill. This happened because the country was having big problems and new rules. Since the exporter did not have ARI, he had to lose all that money. This shows why it is key to think about risks in countries with lots of change.
To fix these problems, sellers now use many new ways. They watch how buyers are doing with their money. They use old ways to check if buyers can pay, but also look at risks in the country. Many get strong insurance plans. Sellers also ask for money quicker, cutting time from 90–180 days down to 30–60 days, especially with risky buyers or in new places. By doing this, they stay safe but can still do business with many buyers.
ARI has become a key thing for sellers. Custom ARI plans guard against both business and political risks. These plans give special help, like risk checks made for sellers, help with claims, and let sellers find credit insurers from many places. This, with strong checks on buyers and clear deals, lets sellers cut down on the money risks when selling in markets tied to open deals. What we see from these stories is that it is key for sellers to make strong plans to manage all kinds of risks.
Conclusion
Open account rules are key for trade with other lands. They help sellers win more deals and grow, but can also bring big money and law risks if not watched close. The good and bad sides stand out more when we look at real life stories.
Think of a firm in the U.S. that sold machines in 2023. The firm lost $500,000 when the person who bought went broke. But the firm had gotten a plan to cover lost pay, so they got back 80% of the money. This shows why it is smart to use good ways to keep risk low. Having strong steps for risk can help firms stay safe.
In all, open account deals can boost trade and help firms grow. But they need care, strong plans, and smart moves to keep the risks from causing harm.
"Accounts Receivable Insurance is essential for exporters looking to mitigate risks associated with open account terms, providing a safety net against buyer insolvency and market volatility."
– John Smith, CEO of Accounts Receivable Insurance
To deal with these hard tasks in the right way, sellers need to be ready ahead of time. They should check the credit of folks they sell to. Make clear deals that both sides can understand and use, and get full insurance from groups you trust, such as Accounts Receivable Insurance. Doing these things helps keep money safe, stops law trouble, and gives a strong backup if things go wrong. These steps also let companies work and try in big world markets with more trust and calm. It is smart to plan well so you can move forward without worry.
