Open Account Payment Terms

Open account is a payment arrangement where the seller ships goods and sends documents directly to the buyer, who pays at an agreed future date (typically 30, 60, or 90 days after invoice or shipment). No bank intermediary controls the documents or guarantees payment. Open account payment terms place the greatest risk on the seller and offer the most favorable terms for the buyer.

In international piping and equipment trade, open account terms are common between parties with established trust, repeat order history, and where the seller’s competitive position requires offering credit.

Definition and Structure

Under open account terms, the payment cycle works as follows:

1. Seller manufactures and ships the goods
2. Seller sends the invoice and shipping documents directly to the buyer
3. Buyer receives the goods and documents
4. Buyer pays the agreed amount on the due date

The buyer has full control over the goods before payment is made. This is the opposite of advance payment, where the seller holds all the use.

When Open Account Is Used

Open account payment terms are typically used in the following scenarios:

Scenario	Example
Long-standing commercial relationship	A valve distributor with 5+ years of trade history with a manufacturer
Intra-company transactions	Parent company purchasing from a subsidiary
Low country risk	Trade between companies in OECD countries
Competitive markets	Seller offers credit to win business over competitors
Repeat orders	Regular monthly purchases of standard pipe and fittings
Buyer has strong credit rating	Large EPC contractors or NOCs with verified creditworthiness

Open Account Payment Periods

Term	Payment Due	Common For
Net 15	15 days after invoice	Small, urgent orders
Net 30	30 days after invoice	Standard commercial term
Net 60	60 days after invoice	Larger orders, project-based
Net 90	90 days after invoice	EPC projects, government buyers
Net 120	120 days after invoice	Large capital equipment
2/10 Net 30	2% discount if paid within 10 days; full amount due at 30 days	Incentivized early payment

Specifications and Risk Factors

Parameter	Open Account	Letter of Credit
Seller risk	High (no payment guarantee)	Low (bank guarantee)
Buyer risk	Low (pays after receiving goods)	Low (pays only against compliant docs)
Bank involvement	None	Full
Cost	Low (no banking fees)	High (1-3% of value)
Cash flow impact on seller	Negative (finances production + shipping)	Neutral (paid at shipment)
Dispute resolution	Contractual/legal only	Documentary (discrepancies stop payment)

Pro Tip

Sellers offering open account terms should consider factoring or forfeiting to convert receivables into immediate cash. Factoring typically costs 1-5% of the invoice value but eliminates the cash flow gap and transfers the credit risk to the factor.

Protecting the Seller

Sellers can mitigate open account risk through credit insurance (covering 80-95% of the invoice if the buyer defaults), credit limits (capping the total outstanding amount per buyer), and retention of title clauses (retaining legal ownership of goods until payment is received). For high-value piping material orders, a standby letter of credit can provide a safety net while maintaining the simplicity of open account terms.

Read the full guide to Incoterms