Open Account

Open account is the standard mechanism of trade credit: the seller ships, sends an invoice, and trusts the buyer to pay by the due date. There is no letter of credit, no draft, no cash up front, and usually no collateral. The seller's protection is limited to its underwriting, its documentation, and its collection process. In domestic US B2B trade, open account is so dominant that "extending terms" and "selling on open account" are effectively synonyms.

The spectrum of payment security runs from cash in advance (all risk on the buyer) through letters of credit and documentary collections (risk shared, mostly in international trade) to open account (all risk on the seller). Sellers move customers along this spectrum as trust builds: a new or marginal account may start at cash in advance or credit card, graduate to a small open line, and earn larger limits with payment history. Moving a deteriorating customer back down the spectrum, from open account to CIA, is one of the strongest defensive moves a credit manager can make, and one of the hardest to execute commercially.

Because open account is unsecured, portfolio-level protections matter: credit insurance on large exposures, UCC filings where purchase-money security is available, guarantees on closely held customers, and in construction, preserving lien rights. Each of these converts some slice of open-account risk into a secured or insured position without abandoning the convenience that makes open account the market default.