The Hidden Cost of Open Account

When the author completed his 2006 Biannual Import Payment and Finance study, 62% of financial firms surveyed indicated anyone can use Open Account. The push to open account is recognition, right or wrong, that the substitution of a bank's capital in the payment process is not inherently necessary. When selling, exporters need to manage country risk, establish buyers' credit lines, and manage the drawdown process -- all of this can be an expensive process. It has become a common practice to try and create a post-shipment funding source for suppliers who are trading on open account. As to buyers providing payment indemnities to enable purchase order financing, the model for the underwriting of pre-shipment finance and what form the indemnity takes is unclear. What moving to open account does is enable importers to streamline documentation that is absolutely necessary to approve payment. Companies must recognize that they need to incorporate US rules globally.