What are the risks of open account payment for importers?

Open account payment is the less risky payment option for importers. 

Generally, under open account terms, importers pay the order amount after they have received the goods.

As a result there is not much thing to worry about for the importers when working with an open account payment term.

Nevertheless on this article I will try to explain you possible risks of an open account payment term for the importers.


What are the risks of open account payment for importers?

Non-Delivery Risk: Non-delivery risk can only be realized if importer pays the order amount after the shipment but before the delivery of the goods.

In order to eliminate non-delivery risk importers make sure that the deferred payment period is longer than the transit time between exporter's location to importer's location for a chosen mode of transport.

As an example, let us assume that an importer in Los Angeles, USA buys textile products from a Chinese exporter, who is located in Shanghai.

The transit time between Shanghai Port to Los Angeles Port varies between 12 days to 21 days from one carrier to another.

Approximately import procedures also takes around 7 days, as a result the goods may not be delivered to the importer's warehouse 30 days after date of shipment.

Importer would be exposed to a non-delivery risk if the determined payment term is shorter than the expected transit time plus import procedures as explained above.

Note: Please keep in mind that exporter may need to present a fraudulent transport document copy to the importer, in order to gain buyer's confidence.

Short Delivery Risk: Importer would be exposed to a short delivery risk if the determined payment term is shorter than the expected transit time plus import procedures as explained above.

Low Quality of Goods Delivery Risk: Importer would be exposed to a low quality of goods delivery risk if the determined payment term is shorter than the expected transit time plus import procedures as explained above.

Do you think that there are additional risks exist for the importers who try to complete the transaction via open account payment term. 

Please feel free to let us know your thoughts with your comments.
Blogger Widget