Open Account (O/A) is a payment arrangement under which the seller ships and bills the buyer with payment due at a later agreed date, typically 30, 60, 90, or 120 days after the bill of lading or invoice date. Open account places the full payment risk on the seller; if the buyer fails to pay, the seller has no bank intermediary to call upon and must rely on direct collection or, in serious cases, legal action. It is the cheapest payment method (no bank fees beyond ordinary wire-transfer charges at maturity) and the most flexible, but it is appropriate only when the buyer’s credit is verified and the seller has either credit insurance or sufficient capital to absorb a default.
When open account is the right method
Open account is the right method when:
- The buyer-seller relationship is established. A factory that has shipped to the same buyer for 12+ months on T/T at sight or L/C terms can graduate to O/A as the relationship matures.
- The seller holds credit insurance, typically through Sinosure for Chinese exporters or through Atradius, Coface, Euler Hermes, or similar for international sellers. The insurance covers the buyer’s non-payment risk for a premium of 0.3-1.5% of insured volume.
- The buyer is a strong credit. Major US, EU, or Australian corporate buyers (Fortune 500 companies, listed manufacturers, government-affiliated buyers) routinely demand open account terms because their credit standing is unquestionable.
- Competitive pressure forces it. In commodity markets where multiple suppliers compete for the same buyer, the buyer who insists on O/A terms has the leverage. Sellers who refuse lose the order.
Open account is the wrong method when:
- The buyer is new and the seller has no payment history. First-shipment relationships should be on L/C or T/T terms.
- The buyer is in a high-risk jurisdiction, countries with foreign exchange controls, weak commercial law, or political instability.
- The seller has no credit insurance and cannot absorb a default that would imperil the seller’s working capital.
- The seller is a small factory with thin cash flow. Even with insurance, the cash-flow gap of waiting 60-120 days for payment can break a thinly capitalised factory.
Open account vs other payment methods
| Method | Seller risk | Buyer risk | Operational cost | Typical use |
|---|---|---|---|---|
| T/T at sight (in advance) | None | Full | Low | New relationships; small transactions |
| T/T after presentation of B/L copy | Limited (cargo control via B/L) | Limited | Low | Established relationships |
| Documentary collection (D/P) | Limited | Limited | Medium | Mid-trust relationships |
| L/C at sight | Bank guarantee | Pre-funded | High | New relationships, high value |
| Usance L/C | Bank guarantee | Financing window | High | Established, large volume |
| Open account | Full | None until payment | Lowest | Strong credit, established |
The progression from T/T-in-advance to open account is the typical maturity arc of a buyer-seller commercial relationship.
Sinosure as the open-account enabler
For Chinese chemical exporters, the practical enabler of open-account terms is Sinosure credit insurance. The insurance allows the factory to extend O/A terms while the insurance covers the default risk:
| Sinosure product | Coverage |
|---|---|
| Short-term export credit insurance | Up to 90% of buyer non-payment loss; covers commercial and political risks |
| Medium- and long-term insurance | For capital-equipment exports with longer payment terms |
| Specific buyer policies | Coverage tied to specific named buyers; lower premium |
| General buyer policies | Coverage for a portfolio of buyers; higher premium but operationally simpler |
Premiums are typically 0.3-1.5% of the insured volume. The factory pays the premium up front and receives reimbursement of 80-90% of the loss if the buyer defaults. The premium is added to the FOB price as a small uplift.
How open account catches sellers off guard
Three failure patterns recur:
- Buyer financial distress concealed until default. A buyer with deteriorating financials may continue to place orders to maintain operating volume. The seller does not know until the payment day arrives. Sinosure’s credit-monitoring service flags rating downgrades, sellers should pay attention.
- Currency mismatch. A USD invoice paid by a buyer holding only EUR or local currency requires the buyer to convert. If the buyer cannot get USD allocation under their country’s foreign exchange rules, payment is delayed. This affects Latin American, African, and some South Asian markets.
- Disputed invoice held against full payment. A minor specification deviation triggers a buyer dispute on a small portion of the invoice. The buyer holds the entire invoice (not just the disputed portion) pending resolution. Sellers should insist on partial payment when disputes are isolated.
How buyers should think about open account requests
For an international buyer asking a Chinese factory for O/A terms:
- Be prepared to provide credit references. Bank references, audited financials, trade references, and Sinosure-coverable status all help.
- Expect a price uplift. The factory’s Sinosure premium plus working-capital cost typically adds 0.5-2% to the FOB price.
- Start with shorter terms. Net 30 first, graduate to Net 60 / Net 90 as the relationship matures.
- Maintain payment discipline. Late payments by even a few days erode the factory’s confidence and can trigger reversion to T/T or L/C terms.
Related terms
L/C is the formal documentary credit; the higher-trust alternative for new relationships. T/T is the simple wire transfer. Documentary Collection sits in the middle. Sinosure is the Chinese export credit insurance that enables O/A. Bank Acceptance Bill is the Chinese-domestic deferred-payment instrument. Draft at Sight is the immediate-payment basis under D/P collection.