But just like any other businesses, international trade have some risks, the considerable amount of which lays beneath the financial side of the operations.
Related Pages: What are the risks of open account payment for importers?
An exporter has to bear significant amount of risks when trying to complete an export operation via an open account payment, as the importer only pays the amount of the goods after the goods have been shipped and in most cases after they have been received by the importer.
Today I would like to explain the risks associated with open account payment term for exporters.
Non-Payment Risk: Non-payment risk is the biggest and ultimate risk that every exporter should bear when working with an open account term.
Non-payment risk occurs under an open account payment, because importers pay to the exporters after shipment. In most cases importers receive the goods, check the quality and then make the wire transfer to the exporters.
In simple words, exporters have to assume virtually all types of risks themselves until they get paid by the importers.
Types of non-payment examples for exporters under open account payments:
- Non Payment of the Order Even After Goods Delivered to the Importer: This situation puts into practice if the importer does not pay the the exporter, within the agreed period, even after import custom procedures have been completed and the goods have been delivered to the importer safely.
- Goods Are Not Accepted by the Importer: Importer may elect not to initiate import operations at all. In this scenario, exporters will not be getting paid by the importers. Additionally, exporters may have to pay demurrage and detention charges , as well as freight cost in order to bring back goods to the exporting country.
- Short-Payment Risk: Importers may choose to compensate their losses from the exporters under open account payment terms even without given any advance notice to the exporters.
In such a case exporter have very little or no power to defend its line of reasoning. Importers just issue a "Reclamation Invoice" or "Discount Invoice" and make a short payment to the exporters.
Late Payment Risk: Late payment risk is another risk that exporters have to assume in open account payment terms.
Some importers elect to not to make the payment of an order amount on the agreed payment date.
Sometimes the late payment period may exceed 30 days or 45 days, which considerably weaken the cash flow of the exporting company.
Do you think that there are additional risks exist for the exporters who try to complete the transaction via open account payment term.
Please feel free to let us know your thoughts with your comments.