Advantages Disadvantages
Open account • This is a very low-risk option for your
customer, since they receive the goods
before paying for them.
• Using open account can help you land a
sale, but you should know whether the
buyer’s credit is good before you agree
to it.
• In most markets, offering open account
terms will make you more competitive,
which can increase repeat business and
help you build both market share and
customer loyalty
Documentary • Because the transactions are carried out
collection through banks, with your bank acting as
your agent, documentary collections
carry less risk for you than an open
account.
• They are also less expensive than LCs,
so they may be a more competitive
option if your customer balks at paying
for an LC.
L/C • LCs provide security to both you and
your buyers because they use banks to
receive and check documents and to
guarantee payment.
• LCs continue to be the usual method of
international payment outside the
United States (although this is beginning
to change in some established markets).
• The process is relatively simple: your
customer obtains an LC from their bank
• The biggest risk with open account is
getting paid late, or not getting paid at
all.
• If the customer doesn’t pay, you may
also incur costs trying to collect on the
debt in addition to the loss from unpaid
debt itself.
• Simply offering longer payment terms
won’t necessarily make you the most
competitive. It’s best to find out what
payment terms are most common for
your industry in the target market, and
remain within them.
• Unlike LCs, your bank does not assume
liability to pay if your customer won’t
or can’t pay once the goods arrive. It’s
more secure than an open account, but
riskier than a letter of credit.
• Documentary collections should
therefore be used with extra caution if
the market is politically risky or there if
there is otherwise a risk the buyer will
not pay.
• When it comes to competitiveness, LCs
have a major drawback in that their fees
can be very costly for your customer.
• In addition, your customer may have to
put up collateral with the issuing bank.
These funds may be frozen from the
day the LC is issued, thus tying up the
customer’s cash.
 (the issuing bank), which guarantees • Overall, this means requiring an LC can
you’ll be paid when the conditions of the make you less competitive in the eyes
sales contract have been met. of a potential customer.

Advance • Least risky form of payment for you— • This is considered the least attractive
payment you get your money at the time of the and competitive from the buyer’s point
sale. of view, as cash in advance is the

• Cash in advance provides the working riskiest way for them to do business—

capital you need to process the order; they part with their money upfront but

there’s no strain on cash flow. have no guarantee you’ll deliver the

• Very simple to transact on your part. goods.

• This method can also tie up a buyer’s
cash while they’re waiting for delivery.
• If the buyer has to borrow all or some
of the amount, this adds another step to
their process and, with interest
payments, could increase their total
cost to buy your product as well.
• As a result, few international customers
will agree to cash-in-advance
purchases.

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