Open account is one of the four primary international trade methods of payment. In this video Matt Jergenson explains why importers prefer open account terms as means of extending days payable outstanding. He also discusses how Trade Payables Finance programs can help both importers, and their overseas suppliers, meet their working capital needs.
Lori Crever: Hi. I'm Lori Crever and today, we're talking with Matt Jergenson, relationship manager with Wells Fargo International Trade Services, about open account trade. Welcome, Matt.
Matt Jergenson: Thanks, Lori. I appreciate you having me here.
Lori Crever: Tell us about your role in the International Group.
Matt Jergenson: So Lori, I work with our corporate customers that have international trade needs. Whether they're selling product overseas or sourcing from overseas and on a day-to-day basis, I try to help them create efficiencies in their international trade activity Whether that's introducing ways to enhance liquidity and working capital, helping them take risks off their plates or just finding different ways to find value to their overall value Supply chain.
Lori Crever: That sounds great. Let's look at what are the four basic terms used in international trade?
Matt Jergenson: It's going to be kind of summarized with in four main international trade payment methods which would be cash In advance, letter of credit, documentary collection, and open account.
Lori Crever: Let's talk about open account. Can you elaborate on that? What does that mean to buy and sell on open account terms?
Matt Jergenson: Well, when a company sells on open account terms, they're actually providing some future payment ability to their customer to pay for the product some point after delivery or shipment. So, for example, the term might be 60 days from bill of lading or 60 days from invoice date and then in the international trade space, open account is generally considered a very favorable term for a buyer because it provides them with some enhanced working capital options.
Lori Crever: Absolutely. It does sound favorable. Now on the part of the importer, can you describe, what are some tools that are available so they improve liquidity and also reduce their risks when they are transacting on open account terms?
Matt Jergenson: Trade payables finance is essentially a version of supply chain finance but it's really geared toward clients who have meaningful import volumes and what it does is it provides them with a tool to potentially extend their payables terms or increase their days payable outstanding. While at the same time, it provides an option to their vendors to sell their receivables or reduce their day sales outstanding. So it's a working capital enhancement tool for both parties in the trade. We often see where this has the biggest impact is where a U.S. importer has the ability to access capital or financing more cheaply than their overseas vendor. So via trade payables finance, we can actually extend that cheaper access to capital to a vendor and they can actually enhance their working capital at a much lower interest rate. So it's a big benefit to both parties in the transaction.
Lori Crever: That definitely sounds like a big benefit. Can you tell us more about how is Wells Fargo and your team uniquely positioned to help U.S.-based import clients when they are sourcing from suppliers all over the world?
Matt Jergenson: Well, I think one of the biggest value adds that we bring to the table is our international footprint and we've got over 500 trade professionals globally and within that team is a dedicated team in Hong Kong that does nothing but work with vendors that supply our U.S. importing customers.
Lori Crever: Now let's flip around the equation and tell me what kind of tools and services does Wells Fargo have for an exporter who is selling on open account terms.
Matt Jergenson: Sure. It's becoming more and more important that our export clients have the ability to offer open account terms to be more competitive and to grow their business. Now that being said, a lot of our exporting clients don't necessarily want to take the incremental risks that comes along with selling on open account terms, so they come to us looking for solutions not only to help them extend terms, but do it in a risk-adverse manner and one of the main ways we do that is we work with trade credit insurance. So we work with both private insurance carriers and government agencies or export credit agencies to help pull together an insurance policy that would cover their risks on the foreign receivable exposure and with that program in place, we can offer lending programs or receivables purchased programs which helps improve our customers' cash flow and liquidity.
Lori Crever: Matt, you have got a lot of great tools in the tool kit.
Matt Jergenson: Absolutely.
Lori Crever: Thank you so much for coming in today.
Matt Jergenson: Thanks, Lori.
Lori Crever: If you'd like to learn more about how to position your company for success in the global marketplace, talk to your Wells Fargo International Trade Services relationship manager.