In Trade Finance,explain what is Open Account

Trade Finance Payment Tool-OPEN Account

In trade finance,there are a few major payment used of which one is called Open account.

Basically,when settlement takes place on open account,it means that the exporter will ship his products to the importer before any payment has been received. The exporter then presents the required documentation to the importer,rather than involving a commercial bank in the process. The importer pays the exporter when the documentation has been received. In US,Europe and even China,Open account is a widely used trade finance technique. However,due to the recent financial crisis many have now opt for traditional methods of trade finance like the letter of credit. By doing so,there will be less risk of counterparty defaults.

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