Trade Finance Guide

OPEN ACCOUNTIntroductionMethods of Paymentin International TradeCash-in-AdvanceDocumentary CollectionsOpen AccountExport Working CapitalFinancingExport Credit InsuranceSVB’s Asset PurchaseProgram (APP)ForfaitingLetters of CreditThe Export-ImportBank Working CapitalProgramsGovernment AssistedForeign Buyer FinancingAn open account transaction means that the goods are shippedand delivered before payment is due, usually in 30 to 90 days.Obviously, this is the most advantageous option to the importer incash flow and cost terms, but it is consequently the highest riskoption for an exporter. Because of the intense competition forexport markets, foreign buyers often press exporters for openaccount terms. In addition, the extension of credit by the seller tothe buyer is more common abroad. Therefore, exporters who arereluctant to extend credit may face the possibility of the loss of thesale to their competitors. However, while this method of paymentwill definitely enhance export competitiveness, exporters shouldthoroughly examine the political, economic, and commercial risks,as well as cultural influences to ensure that payment will be receivedin full and on time. It is possible to substantially mitigate the riskof nonpayment associated with open account trade by using suchtrade finance techniques as export credit insurance. Exporters mayalso wish to seek export working capital financing to ensure thatthey have access to financing for both the production for export andfor any credit while waiting to be paid.Characteristics of an Open AccountApplicabilityRecommended for use (1) in secure trading relationships or marketsor (2) in competitive markets to win customers with the use of one ormore appropriate trade finance techniques.RiskExporter faces significant risk as the buyer could default on paymentobligation after shipment of the goods.Pros° Boost competitiveness in the global market° Establish and maintain a successful trade relationshipCons°°Exposed significantly to the risk of nonpaymentAdditional costs associated with risk mitigation measuresTrade Finance Guide 16