90 Day Credit Terms vs. Receiving Goods Immediately

90 Day Payment Terms

Ninety-day payment terms and receiving the goods immediately are two entirely separate parts of the same commercial transaction. The delivery of goods is always immediate to allow the buyer to make use of what he has bought. The payment terms are a separate issue and the seller allowing ninety days for the buyer to make payment aids cash flow for the buyer and enables the seller to sell more of his product since he is displaying an added degree of flexibility.

Today, banks still manage a large (over 90%) portion of global trade finance business but that is gradually being eroded by Fintech firms who are starting to cast a large shadow. Banks are in a difficult position. They have to provide traditional services to the customers but also need to keep up with the innovation being exhibited by Fintech.

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Open Account Trading - Cash Against Documents

Types of Payment Terms

The types of payment terms offered to enable buyers and sellers in different countries to transact are closely linked to risk and price.

    1. Open Account Trading: The cheapest but least secure method is open account trading. In that method, the goods are shipped to the buyer with no security overpayment. The buyer will be invoiced, often at the end of the month and will pay often within ten days of receipt of invoice. Banks are not involved but there is often a foreign exchange aspect that is now the subject of intense competition.


  1. Cash Against Documents: The next cheapest route that is a little more secure is cash against documents. In this method, the payment is made by the buyer upon receipt of the documents relating to the goods. In this method, the buyer can see from the documents that the goods have been shipped and are often on route and he will need to make payment before he is able to take control of the goods and clear customs. This can also be referred to as goods against acceptance. In this method, the goods are delivered as if the payment has been made against an “acceptance” signed by the buyer that he will make payment in a pre-specified amount of time. For example, payment can be 90 days from the date the goods were shipped and left the factory. The term acceptance is a banking term which means that the debtor (buyer) agrees (or accepts) that he must make payment at an agreed future date and signs to that effect
Expose the seller to credit risk since he has allowed the buyer to take control

Net 90 Payment Terms

90-day payment terms or net 90 terms) expose the seller to credit risk since he has allowed the buyer to take control of the goods and over a 90-day period, any issue could befall the importer which stops him making payment.

Net 90 payment terms are a very common term in international trade. To allow ninety days from shipment is very common. It is a standard procedure negotiated between an importer’s buying department and an exporters commercial representative. It is fair and equitable but does require some banking intervention. The seller will almost certainly require an overdraft to fund his cash flow until he is paid, while an importer, if he is buying raw materials, has production overheads to fund.

In a trade transaction that involves the movement of goods, the immediate delivery of goods as soon as possible allows the buyer to either deliver finished goods to his retail outlets or deliver raw materials into his supply chain. Either way, that is entirely separate from the financial consideration.

Payments in international trade have, almost since banking first began, been the province of banks. As long ago as the seventeenth century, British merchants were paying for the import of newly discovered commodities through their banks.

There are varying degrees of payment security that may have been a little devalued as faith in banks has waned a little since the financial crisis. There needs to be a distinction made between Commercial Banks who handle lending, trade and FX business etc. on behalf of their customers and Investment Banks who deal in the markets primarily on their own account. As the lines became blurred, customer funds became intermingled with bank capital and losses that occurred following the subprime debacle spilled over to commercial business.

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About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”