Open-account export terms: easy for the buyer, risky for the exporter

Open-account trading means the exporter delivers goods or services before payment is due. It is simple and attractive to overseas buyers, but it gives the exporter unsecured credit exposure until the invoice is paid. The payment terms therefore need strong buyer due diligence, currency clarity and working-capital planning.

Open account means delivery occurs before cash is received

Business.gov.uk describes open account as the simplest export payment method: goods or services are delivered before payment becomes due. Common terms can be 30, 60 or 90 days from invoice, delivery or completion, depending on the contract.

The ease for the buyer is exactly what creates exporter risk. The business has already paid staff, suppliers and freight before receiving the sale proceeds. Treat open-account terms as a credit decision, not merely a sales condition.

Use open account only where customer trust and credit evidence support it

Government export guidance says open account is most appropriate where the exporter has a high level of trust in the customer. Check the buyer's financial information, trade references, payment history and country risk before extending substantial terms.

Set a credit limit even for a long-standing buyer. A customer ordering £50,000 each month on 90-day terms can create more than £150,000 of exposure before the oldest invoice is paid. Monitor total outstanding value rather than approving each order in isolation.

Define exactly when the payment clock starts

Specify whether 60 days runs from invoice date, bill of lading, delivery, acceptance or another milestone. Ambiguous language creates disputes that can delay payment without technically making the buyer late.

Also state currency, bank charges, payment route and the account to be used. If an invoice is in euros but the customer sends sterling without agreement, the exporter can lose margin through exchange-rate differences and bank conversion costs.

Finance the gap between fulfilment and customer receipt

Open account can increase sales while consuming cash. Forecast raw materials, payroll, freight, VAT and other costs through the full credit period. The exporter may need an overdraft, invoice finance or other working-capital facility to support growth.

A £1 million order with a 15 percent margin can still create a serious liquidity problem if £850,000 of costs are paid months before the buyer settles. Profitability does not replace working capital.

Use credit insurance or bank-supported alternatives for larger exposures

Where the buyer is strategically important but the exposure is large, consider trade credit insurance. For riskier customers, a documentary collection, letter of credit or advance payment can provide stronger protection than open account.

Payment method should evolve with the relationship. A new buyer can start on advance payment or letter of credit and later move to open account after a reliable history develops. Competitive terms do not need to be offered on day one.

Escalate overdue invoices quickly across borders

Set reminder and escalation dates before the invoice becomes overdue. Contact the buyer early, confirm whether there is a documentation or acceptance issue and preserve evidence of delivery. International debt recovery can be slower and more expensive than domestic collection.

If the buyer requests an extension, reassess the total exposure and insurance conditions before agreeing. A 30-day extension on one invoice can overlap with new orders and quietly double the credit being extended to the customer.

A useful export credit-control rule is to set both a monetary limit and a maximum days-sales-outstanding expectation for each buyer. A customer can remain below a £200,000 limit but still become risky if invoices repeatedly drift from 60 days to 110 days. Age and amount should therefore be reviewed together before new shipments are approved.

Model currency exposure from invoice date to expected receipt date as well. If the invoice is denominated in dollars and the exporter reports in sterling, 90-day open account also creates 90 days of FX risk unless hedged. Payment terms and treasury policy should be designed together rather than allowing the sales contract to create an unmanaged currency position.

Set a management trigger for deteriorating behaviour. For example, if a buyer moves from paying within 55 days to paying at 75 days on 60-day terms, freeze further credit-limit increases until finance has spoken to the customer and reviewed current information. That turns ageing into a decision tool rather than a report reviewed only after invoices become seriously overdue.

For very large orders, consider splitting payment milestones instead of granting the full contract value on open account. A deposit, progress payment or payment against shipment can reduce peak unsecured exposure while preserving competitive final terms. The objective is not to force every buyer onto advance payment but to prevent one contract from consuming the exporter's entire working-capital capacity.