What does the term "open account" signify in international trade?

The term "open account" in international trade signifies a transaction where goods are shipped and delivered before payment is due. This arrangement is considered a high-risk payment method from the seller's perspective, as it allows the buyer to receive and inspect the goods before making payment. This can be particularly advantageous for the buyer, as it provides greater flexibility and could improve cash flow.

Open account transactions are often seen in established business relationships where creditworthiness has been established, and the seller has confidence in the buyer's ability to pay after receiving the merchandise. This approach helps to foster trust and long-term partnerships in the global market.

Other options do not accurately describe the nature of an open account. For instance, requiring full payment before shipment indicates a prepayment method, which contrasts with the open account structure where payment occurs post-delivery. A payment method used solely for domestic transactions is not applicable, as open account terms can be utilized in international dealings. Similarly, while a type of credit issued to trusted suppliers might involve a level of deferred payment, it does not specifically capture the essence of an open account transaction's deferral of payment after shipment.