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Trade Finance

What is Open Account?

A trade finance arrangement where the buyer pays the seller after receiving goods, typically within 30 to 90 days. In the context of U.S. customs and tariff recovery, understanding open account is essential for navigating the CAPE refund process and ensuring accurate duty assessment.

Definition

Open account is a trade finance arrangement where the seller ships goods and the buyer pays after receiving them, typically within 30 to 90 days. This is the most buyer-friendly payment term and the most common method in international trade (used in an estimated 80% of global transactions). The seller assumes the greatest risk — if the buyer fails to pay, recovering the debt across international borders is difficult and expensive. Open account terms are most common between trading partners with established relationships and in countries with strong legal systems.

How Open Account Relates to Tariff Refunds

Open account terms do not directly affect customs duties or CAPE refund eligibility. However, the payment terms can affect the declared customs value if discounts for early payment or adjustments for late payment change the 'price actually paid or payable' that forms the transaction value.

Example

An importer purchases $200,000 of goods on 60-day open account terms. The goods arrive, the broker files an entry and pays duties based on the $200,000 transaction value. The importer pays the supplier 60 days later. The duty assessment and CAPE eligibility are unaffected by the payment timing.

Frequently Asked Questions

Is open account risky for sellers?
Yes. The seller ships before receiving payment, bearing the risk of buyer default. Trade credit insurance can mitigate this risk.
Do payment terms affect customs value?
Generally no, unless the payment terms include price adjustments (early payment discounts, late fees) that change the transaction value.

Related Terms

Letter of CreditA bank-issued guarantee of payment to the seller upon presentation of specified trade documents, reducing buyer default risk.Trade FinanceFinancial instruments and products (letters of credit, trade insurance, factoring) that facilitate international trade transactions.Customs ValueThe declared value of imported goods used as the basis for calculating ad valorem duties, per 19 U.S.C. section 1401a.IncotermsInternational Commercial Terms published by the ICC that define the responsibilities of buyers and sellers in global trade transactions.

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