Trade finance

Trade finance comprises banking products that help importers and exporters manage payment, credit, and delivery risks in domestic and international trade.

Letter of credit: A bank’s conditional promise to pay an exporter when specified documentary requirements are met. It makes payment depend on compliant documents rather than the importer’s later willingness to pay.
Export credit agency: A public institution that supports national exporters through financing, guarantees, or insurance. Its guarantees and loans can make export transactions financeable when commercial lenders will not bear the risk.
Open account: A sales arrangement in which goods are delivered before payment falls due, without a bank payment undertaking. It places more nonpayment risk on the exporter than a confirmed documentary credit.
Trade credit insurance: Insurance protecting businesses against losses when customers fail to pay commercial debts. It supports lending against trade receivables by reducing the risk of buyer default.
International Chamber of Commerce: A global business organization that develops rules and standards used in international commerce. Its rules shape common practices for documentary credits, collections, and trade terms.
Documentary collection: A bank-mediated process in which export documents are released against payment or acceptance of a draft. It offers document control without the bank’s payment guarantee found in a letter of credit.
Export credit insurance: Insurance that protects an exporter or lender against specified risks of nonpayment by foreign buyers. It covers losses that payment instruments alone may not prevent, including certain political risks.
Cash in advance: A payment arrangement requiring the buyer to pay before the seller ships the goods. It protects the exporter from buyer nonpayment but leaves the buyer exposed before receiving goods.
Country risk: The risk that political, economic, or legal conditions in a country disrupt financial obligations or business activity. Cross-border transactions expose lenders and exporters to disruptions beyond an individual buyer’s control.
UCP 600: The International Chamber of Commerce’s 2007 rules governing documentary credits when incorporated into a credit. These rules standardize how banks examine documents and handle credit presentations.

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