An Australian business is negotiating an order with a new overseas customer - HSC - SSCE Business Studies - Question 11 - 2009 - Paper 1

To determine which payment method presents the greatest risk for the Australian business, it is essential to analyze each option:

Open Account

An open account allows the buyer to receive the goods and pay for them later. This method carries significant risk for the seller, especially with a new overseas customer, as it relies heavily on the buyer's trustworthiness and financial stability.

Letter of Credit

A letter of credit is a formal document from a bank guaranteeing that a seller will receive payment for goods provided the delivery conditions are met. While it reduces risk significantly, it involves some degree of buyer and seller trust, and it is regarded as a safer option than an open account.

Bill of Exchange

A bill of exchange is a written order from one party to another to pay a specified amount at a predetermined time. This method carries moderate risk, as it necessitates buyer's creditworthiness but is considered more secure than an open account.

Payment in Advance

Payment in advance entails that the buyer pays in full before receiving the goods. This method poses minimal risk to the seller, as they receive payment before the exchange of goods occurs.

In conclusion, among these options, the open account method poses the greatest risk for the Australian business as it exposes them to the possibility of non-payment after shipment of the goods.