Protecting a business from insolvency, bankruptcy, political upheaval or against its user’s inability to pay for services and products is done through trade credit insurance (TCI). It reimburses the firm with cash when customers cannot pay because of unfortunate circumstances. Insurance is, therefore, a must in any significant trade finance scenario. Businesses that have plans to not get into any credit risk must self-insure. However, this will work out expensive, mainly for a small firm operating with a small number of buyers.
In order to succeed in a global marketplace and make more sales than foreign competitors, exports have to offer attractive sales terms with reliable payment methods. A trustworthy payment mode will minimize risks and fulfil the buyer’s needs. Export sale prioritizes full payment on time. Receiving the payment as early as possible is the goal of any exporter. On the contrary, importers want to delay payment as long as possible until the arrived goods are resold. This will generate income which they can use to pay the exporter. Trade finance plays a vital role in transaction services in international banks, and they manage all the risks involved in cross-border trade.