Another way in which American trade is generally carried on, and upon which basis most transactions are effected, is by the open account system, whereby the seller enters upon his books a "debit" against the account of the buyer, which represents a sum owing to the seller. This system is generally most availed of in credit transactions. Open accounts are usually known as "book accounts" and act as substitutes for promissory notes and cash discounts. Under this system, the chief evidence of the indebtedness of the buyer to the seller is the record on the seller's books.

The open account system holds out many disadvantages. Suppose a seller has a need for money but has not his customers' notes to discount at his bank. He is able to procure a loan only upon the discount of his own paper, that is, by giving his own notes, secured by his open book account. Another way of realizing on book accounts has been to sell or assign them outright to a bank or commission house, which assumes all risks and charges a high rate of interest, and perhaps a bonus in addition. The assignor receives only a limited amount on his book accounts, the assignee permitting the former to collect the accounts when due, but requires the substitution of other accounts to maintain the agreed upon ratio. In this way, the borrower's credit may suffer somewhat, due to the fact that his customers may learn that he has assigned their accounts to obtain funds.

The evils attending the open book account method are many and serious. It permits the buyer to hold off payment past the date of maturity. It results in a loss of interest charges to the seller. It limits the activities of the seller in that he must wait until he realizes upon his accounts. The seller, as a result, must borrow on his available assets, and, in whatever form, if his credit is not so high as to acquire for him a moderate loaning rate, on his own note, he is forced to sacrifice more than is necessary if he must assign or borrow on his book accounts.

The system of open accounts is attended by numerous other abuses and unfair practices. It results in slow collections, bad debts, and unnecessary losses. Another very serious evil in the open book account method is that the only evidence the seller has of a debt owing to him is the entry upon his books, which must be proven to the satisfaction of those in authority. Furthermore, when the time comes for settlement, the buyer may always produce arguments whereby deductions are forced to be given for unreasonable and unfair claims, shortages, and losses that are questionable, short weights, trade discounts, and various other objectionable methods.