Which payment method poses the highest risk for the seller?

The open account payment method poses the highest risk for the seller primarily because it allows the buyer to receive goods or services before any payment is made. In this arrangement, the seller ships the products and trusts that the buyer will pay within a specified time frame. This reliance can lead to significant risks, particularly in the case of international trade where recourse for non-payment is complicated by geographical and legal differences.

When sellers opt for open accounts, they expose themselves to potential defaults or delays in payment from buyers, which can result in substantial financial loss. If the buyer fails to fulfill their payment obligation, the seller's ability to recover costs or seek legal redress may be limited.

In contrast, cash in advance provides upfront payment, significantly reducing the risk for the seller. A letter of credit, while also generally quite secure for the seller, involves a bank guaranteeing payment, thus offering an additional layer of security. Similarly, a time draft includes the involvement of banks and typically provides some assurance that payment will be made based on agreed terms.