Open Account Was the Industry Standard. Then One Buyer Failed.
Quote from chief_editor on June 5, 2026, 3:00 amOpen account payment terms are common in established commodity trade relationships. When a trusted buyer fails, the seller has no documentary protection and recovers as an unsecured creditor.
A European metals trader had sold copper cathodes to the same Turkish industrial buyer on open account terms for six years. Payment had come within 30 days on every invoice without exception. The buyer was a well-established manufacturer, audited, with publicly available credit assessments. The trading company had extended an open account limit of $3.5 million to the buyer based on this history.
In November, the buyer took delivery of two shipments totaling $2.8 million. Payment was due December 20. On December 18, the buyer entered formal insolvency proceedings under Turkish bankruptcy law. The seller received notice two days before payment was due.
The seller's exposure at the moment of insolvency filing: $2.8 million. Their security: none. The goods had been delivered and accepted — there was no unused retention of title in a position where the goods were still identifiable and recoverable. The seller was an unsecured creditor of an insolvent estate.
In Turkish insolvency proceedings, unsecured creditors typically recover after secured creditors — banks, lien holders, and government creditors — have been satisfied. Industry estimates for unsecured creditor recovery rates in medium-sized Turkish industrial insolvencies suggest recoveries of 15 to 40 cents on the dollar, over a process that can extend two to four years.
Six Years of On-Time Payment Does Not Predict Payment Month Seven
The relationship history between a commodity seller and a buyer creates a set of expectations that are reasonable approximations of future behavior under normal conditions. They are not predictors of behavior under financial stress. A buyer who has paid consistently for six years may be paying consistently because their business is functioning normally — and may fail to pay the moment their business stops functioning normally.
The mechanisms of business failure typically operate invisibly for months before they produce an insolvency event that is visible to creditors. Revenue deterioration, inventory build-up, bank facility covenant pressure, private dispute with a major customer — these are the conditions that precede formal insolvency, and they are often not disclosed to suppliers who are trading on open account without financial covenant visibility.
The copper cathode seller in this case had no contractual right to financial information about their buyer. The open account relationship was a commercial arrangement, not a financing relationship. They had no visibility into the buyer's bank leverage, their covenant headroom, or the specific business deterioration that preceded the insolvency filing. The six-year payment history was their primary credit signal, and that signal was still clear until the day insolvency was filed.
Trade credit insurance — insurance against buyer insolvency and payment default — exists precisely to address this gap. A seller who has $3.5 million of open account exposure to a single buyer and who does not carry trade credit insurance for that exposure has made a decision, implicitly or explicitly, to self-insure against the buyer's default. When the buyer defaults, the decision becomes visible in the accounts.
The Open Account Decision Is a Credit Decision
Extending open account terms to a buyer is a credit extension, structurally equivalent to lending the buyer the value of the goods for the payment period. A seller who extends $3.5 million of open account credit to a buyer has, in economic substance, made an unsecured loan of $3.5 million at zero interest rate for 30 days.
Most commodity sellers who extend open account terms do not frame it this way. They frame it as a commercial decision — this is how we do business in this relationship, this is the industry standard for this buyer type, and requesting LCs or other security would damage the relationship. These are valid commercial considerations. They are also exactly what a lender who is declining collateral requirements would say.
The credit assessment that should underpin an open account limit — financial statement review, credit report, bank reference, trade reference, sector risk assessment — is the same assessment a bank would perform before extending an unsecured lending facility of the same size. Whether sellers apply this level of rigor depends on their commercial culture, their exposure management systems, and whether they have previously experienced the consequence of not applying it.
Open account payment terms are common in established commodity trade relationships. When a trusted buyer fails, the seller has no documentary protection and recovers as an unsecured creditor.
A European metals trader had sold copper cathodes to the same Turkish industrial buyer on open account terms for six years. Payment had come within 30 days on every invoice without exception. The buyer was a well-established manufacturer, audited, with publicly available credit assessments. The trading company had extended an open account limit of $3.5 million to the buyer based on this history.
In November, the buyer took delivery of two shipments totaling $2.8 million. Payment was due December 20. On December 18, the buyer entered formal insolvency proceedings under Turkish bankruptcy law. The seller received notice two days before payment was due.
The seller's exposure at the moment of insolvency filing: $2.8 million. Their security: none. The goods had been delivered and accepted — there was no unused retention of title in a position where the goods were still identifiable and recoverable. The seller was an unsecured creditor of an insolvent estate.
In Turkish insolvency proceedings, unsecured creditors typically recover after secured creditors — banks, lien holders, and government creditors — have been satisfied. Industry estimates for unsecured creditor recovery rates in medium-sized Turkish industrial insolvencies suggest recoveries of 15 to 40 cents on the dollar, over a process that can extend two to four years.
Six Years of On-Time Payment Does Not Predict Payment Month Seven
The relationship history between a commodity seller and a buyer creates a set of expectations that are reasonable approximations of future behavior under normal conditions. They are not predictors of behavior under financial stress. A buyer who has paid consistently for six years may be paying consistently because their business is functioning normally — and may fail to pay the moment their business stops functioning normally.
The mechanisms of business failure typically operate invisibly for months before they produce an insolvency event that is visible to creditors. Revenue deterioration, inventory build-up, bank facility covenant pressure, private dispute with a major customer — these are the conditions that precede formal insolvency, and they are often not disclosed to suppliers who are trading on open account without financial covenant visibility.
The copper cathode seller in this case had no contractual right to financial information about their buyer. The open account relationship was a commercial arrangement, not a financing relationship. They had no visibility into the buyer's bank leverage, their covenant headroom, or the specific business deterioration that preceded the insolvency filing. The six-year payment history was their primary credit signal, and that signal was still clear until the day insolvency was filed.
Trade credit insurance — insurance against buyer insolvency and payment default — exists precisely to address this gap. A seller who has $3.5 million of open account exposure to a single buyer and who does not carry trade credit insurance for that exposure has made a decision, implicitly or explicitly, to self-insure against the buyer's default. When the buyer defaults, the decision becomes visible in the accounts.
The Open Account Decision Is a Credit Decision
Extending open account terms to a buyer is a credit extension, structurally equivalent to lending the buyer the value of the goods for the payment period. A seller who extends $3.5 million of open account credit to a buyer has, in economic substance, made an unsecured loan of $3.5 million at zero interest rate for 30 days.
Most commodity sellers who extend open account terms do not frame it this way. They frame it as a commercial decision — this is how we do business in this relationship, this is the industry standard for this buyer type, and requesting LCs or other security would damage the relationship. These are valid commercial considerations. They are also exactly what a lender who is declining collateral requirements would say.
The credit assessment that should underpin an open account limit — financial statement review, credit report, bank reference, trade reference, sector risk assessment — is the same assessment a bank would perform before extending an unsecured lending facility of the same size. Whether sellers apply this level of rigor depends on their commercial culture, their exposure management systems, and whether they have previously experienced the consequence of not applying it.