OPEN ACCOUNT;

a mode of payment in international trade

SUBJECT: INTERNATIONAL MARKETING

PRESENTED TO: PRESENTOR:

SONILNDRO AKAIJUM SHAHAB KHAN
Assistant Professor MBA 3rd SEMESTER
Dept. Of Management ROLL NO GM29/17
NEHU, Tura Campus Dept. Of Management
NEHU, Tura Campus
Learning Outcomes
• Open Account and its Importance.
• How does open account works?
• Costs involved in open account transactions.
• How risky open account is?
• How exporters tackle the Risks ?
 • Also called open credit
What • Involves delivery of your goods or services to the buyer with
is an invoice requesting payment at a certain time after
delivery.
it? • The time given to the buyer to pay is called the credit term.

How it is • Because of intense competition in export markets, foreign

importan buyers often press exporters for open account terms.
t these • Exporters who are reluctant to extend credit may lose a
days? sale to their competitors.
How does it work?
In negotiating an export contract, the
exporter agree with the buyer the
amount, currency, timing and method
of payment.
When a payment is due, your buyer
will usually send it by
• Telegraphic (wire) transfer through a
bank or
• International bank cheque (bank
draft)
When he ships the goods or provide the
services, the buyer receives an invoice
setting out those payment details.
Control of the goods passes to the buyer
before you receive payment.
The credit term agreed with the buyer is
also stated on the invoice. For example,
if a buyer has 30 days’ credit, the invoice
will state when the 30 days begin—on
the date of invoice, the date of delivery
or another date.
How does it works?
What costs are involved?
Telegraphi • The cost is usually paid by the sender (buyer)
c
transfers
International • Depends on the bank of whether collection
charges apply.
cheques
• costs of reducing non-payment risk, such as
Other costs taking out export credit insurance, or of raising
working capital.
What are the pros and cons?
Pros
May increase market competitiveness, as this
payment method has no risk for overseas buyers
and it may also help their cash flow
International telegraphic transfers and bank
cheques are cheaper and more straightforward
payment methods for both seller and buyer than
a documentary collection or documentary credit
Cons
The relatively high risk of non-payment makes open
account suited to long standing, trouble-free
trading relationships
As seller don’t receive payment until after he has
shipped the goods, payment on open account
terms may strain his cash flow, especially if he
provides extended payment terms
If the export contract is in a foreign currency, seller
is exposed to exchange rate risk from the date of
the sale contract to the time of payment
How risky is it?
Safest Riskiest
Cash in
advance
A range of payment
methods is used in
international trade, with Letters of
payments taking place at

IMPORTER
EXPORTER
a different stage of the Credit
export transaction in
each.
Documentary
Collections
Each method has a
different level of non-
payment risk for the Open
exporter, and non-delivery Account
risk for the buyer. Riskiest Safest
 How Exporters tackle the risk?

Using one or more of the appropriate trade finance

techniques

Government-
Guaranteed
Export Working Export
Export Export Credit Forfaiting
Capital Financing Working
Factoring
Insurance
The exporter who lacks Capital Allows the
Provides protection Discounting of exporter to sell
sufficient liquidity needs Program
export working capital against a short-term its medium term
Able tosobtain losses-default, receivable (up
financing that covers the needed facilities commercial receivables (180
entire cash cycle from insolvency, to 180 days). days to 7 years)
from commercial bankruptcy, and to the forfeiter
purchase of raw materials lenders when Usually works
through the ultimate Political losses-war, at a discount, in
financing is nationalization, with consumer exchange for
collection of the sales otherwise not goods
Currency cash
proceeds. Loan or revolving available.
line of credit inconvertibility