Reasons to offer open credit to international buyers
Experienced credit managers recognize that there is often significant
risk associated with offering open account terms to foreign buyers.
For many years, U.S. based companies routinely required foreign buyers
to pay for merchandise in advance or supply a letter of credit covering
Today, economic conditions have changed and most U.S. companies
do not enjoy the kind of market power that would enable them to dictate
terms of sale to foreign customers. Some of the reasons companies
offer open account terms to new or existing foreign customers include:
The need to meet competition. If other suppliers offer similar
products on terms other than letter of credit or cash in advance
U.S. exporters are in a very poor competitive position if they
are unable or unwilling to match the terms being offered by their
Offering open account terms sometimes allows the seller to increase
the purchase price --- in a sense offsetting [to some degree] the
additional risk associated with open account terms with a higher
In cases where the U.S. supplier insists on receiving a letter
of credit, buyers are insisting that the seller pay or at least
share the cost of obtaining the letter of credit. These costs can
be avoided if the seller relents and offers open account terms.
Offering open account terms is one way to help increase market
penetration and market share in foreign markets.
If the seller has excess inventory offering foreign buyers open
account terms is one way to reduce these inventory levels.
Some U.S. exporters are more willing to consider open account terms
because they have opted to purchase export credit insurance. Others
do so because the alternative involves losing the business to a competitor
willing to take a chance and offer open account terms. One thing
seems certain: Pandora's Box is now open, and more and more foreign
buyers are going to insist on receiving open account terms or they
will take their business elsewhere.