What do open account terms require between buyer and seller?

Open account terms primarily rely on an element of trust between the buyer and seller. In such arrangements, the seller ships goods or provides services to the buyer without requiring payment upfront. Instead, the expectation is that the buyer will pay after receiving the goods or services, which inherently involves a significant level of trust in the buyer's ability and willingness to fulfill their payment obligation.

This trust is critical, as the seller is effectively extending credit to the buyer, assuming the risk that the buyer may not pay as agreed. The lack of financial collateral or formal contracts differentiates open account arrangements from other forms of trade finance, where guarantees or documented agreements might be in place. Regulatory compliance, while important in many aspects of trade and finance, is not a defining feature of open account terms. Instead, the success of such arrangements hinges on the mutual confidence between the trading parties.