An open account transaction form of payment means that goods are shipped and delivered before payment is due, usually in 30 to 90 days.
The Group Managing Director, First Bank of Nigeria, FBN, Stephen Onasanya, has advised the Federal Government to consider the use of open account payment for international trade transactions.
Mr. Onasanya made the call in a paper entitled, “Payment System in Nigerian International Trade”, which he delivered at the ongoing 2012 Comptroller-General of Customs conference in Katsina on Tuesday.
He said an open account transaction form of payment means that goods are shipped and delivered before payment is due, usually in 30 to 90 days.
He listed four primary methods of payments for international transactions: Advance Payment, Open Account, Documentary Collection, DC, and Documentary Letters of Credit, LC.
He noted that in spite of the focus on DC and LC over the years, trade financing was shifting away from this “cumbersome method” of conducting business.
“It is now estimated that more than 80 per cent of global trade is conducted on an open account basis,” he said.
Mr. Onasanya said that the open account transaction payment saved time and had been widely adopted by small corporations as they become more comfortable with their buyer and supplier relationships. He described this form of payment as the most advantageous option to the importer in cash flow and cost terms, but the highest risk option.
The bank chief explained that the payment system could be offered in competitive markets with trade finance techniques, such as export working capital financing and export credit insurance. Other trade finance methods are Government Guaranteed Export Working Capital Programme, and Export Factoring.
He, however, observed that these finance methods were not readily available in financial systems in Nigeria for use by exporters.
“Even for importers, import on open account is not guaranteed by the Federal Government in Nigeria,” he said.
Mr. Onasanya also told conference participants that because of the intense competition for export markets, many foreign buyers often press exporters for open account terms.
“In addition, the extension of credit from the seller to the buyer is more common abroad,” he said. “Therefore, exporters who are reluctant to extend credit may face the possibility of the loss of sale to their competitors”.
He advised exporters who choose the open account method of payment to thoroughly examine the political, economic and commercial risks to ensure seamless transaction.
The theme of the weeklong conference is “Borders Divide: Customs Connects”.
It is being attended by freight forwarders, regulatory government agencies in the trade, port and security sector, regional customs administrations, banks, insurers, manufacturers and journalists.
One of the main goals of the conference is to foster better collaboration between the Nigeria Customs and stakeholders to ensure speedy clearance of goods and trade facilitation.
The last conference was held in Sokoto in 2007.