Aspects You Might Pay Close Attention While Testing Trade finance

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Managing international trade and commerce on a platform requires a thorough inspection. Companies use financial instruments and products to accelerate International trade and commerce. These instruments and products make it easy for banks to transact business between importers and exporters through trading.

Trade finance is a simple mechanism controlled by 3rd party, whether a bank or other financial institutions. Now consider an instance that while processing a “letter of credit” or “credit letter”, a bank faces a performance failure or functional errors during an ongoing trade transaction. It will have a terrible impact on the trading process, which will add to the risk for both buyer and seller, putting the 3rd party (bank or financial institution) in a bad light. As the main focus of trade finance is to eliminate the risk associated with the payment and supply, the 3rd issuing party (banks or financial institutions) must ensure that the transaction is carried out without any disruption. It leads to the need for testing the trade finance platform to ensure a seamless performance at all times. 

Why testing Trade Finance is necessary?

Mentioned below are the points, which explains why testing trade finance is necessary

  1. Reduces the payment risk – It acts as a security to reduce the payment risk for the exporters and supply risk for the importers.
  2. Ensures quality system performance – Banks and financial institutions have dedicated trade finance modules and systems to process diverse trade finance transactions. Testing the trade finance module is critical to ensure that the system runs smoothly and efficiently and provides accurate results.
  3. Improves the efficiency of operations – Testing the trade finance allows companies to record cash transaction between importer and exporter by reducing the system performance errors and improving the operation efficiency.
  4. Reduces the time to process the transactions – Testing the trade finance platforms ensures the system stability to accommodate multiple information and process the transaction in less time. It also ensures that the systems perform without any technical errors even with high volume of data and speed of transaction.

Key Points While Testing Trade Finance Modules

Following are the key points to keep in mind while testing the trade finance modules:

  1. Understanding the Product: Trade finance involves multiple products banks may use to extend the facility. Each product has different features and ways of providing finance. Therefore, it is important to understand the product and instruments. Here’s a brief description of instruments for trade finance:
    1. Letter of Credits: A Letter of Credit reduces the risk of non-payments. The buyer’s bank provides a payment guarantee to the seller’s bank by issuing a letter of credit. Financing can be availed of by the seller against this letter of credit as the seller’s bank has security that the buyer’s bank will pay in case of default by the buyer, thereby acting as a bank guarantee. The buyer’s bank can then proceed against the buyer to recover the dues.
    2. Cash Credits / Overdrafts: These are some of the most common means of raising finance whereby the businesses can borrow money from the line of open credit accounts for trade. One of the key benefits of this form of finance is that the interest is charged only on the amount utilised. Once the payment is received, it can be credited to the cash credit or overdraft account to reduce the amount of borrowing and consequent interest rate.
    3. Invoice Factoring or Invoice Discounting: Here, the seller can present the invoice to the bank to avail of finances. The bank or the concerned financial institution can either purchase the invoice, collect the remittance or discount the invoice where the bank itself does the bill collection. Either way, the seller gets the required financing to meet his working capital needs. Once the payment is received, the bank adjusts the amount against the factored-in or discounted invoice.
    4. Export Credits: Export credit allows the exporter to avail of pre-shipment financing. By presenting the export order received from the importer, the exporters can use the export credits. After receiving funds from the importer, the amount is adjusted against the export credit to close the same.
    5. Term Loans: Terms loans are specifically suited for long-term projects. Here, one can avail the required amount against certain security. The loan amount needs to be repaid in instalments during the loan tenure, which is usually 10 to 30 years. Term loans can be taken against the property or any other asset of the seller. In many cases, top-up facilities are also available if more funds are needed.

2. Impact Analysis: Certain changes are carried out in the systems to increase their efficiency and meet the needs of the changing times. The impact analysis helps analyse the impact of the changes carried out in the systems. This ensures that the changes are working as intended and there are no inaccuracies.

3. Application security: Financial data held by the banks and financial institutions are sensitive. Therefore, security cannot be compromised at any instance. This makes security testing an important aspect of trade finance modules. Therefore, as trade finance involves an international transaction, security testing ensures that the transactions are carried out in a secured manner.

4. Application performance: Trade finance involves a multitude of transactions. Therefore, it is important to determine the system’s performance to ensure that it caters to the requirements of each product and instrument.  Loopholes in the performance are identified and corrected to ensure the smooth running of the systems.

Why Yethi for trade finance testing?

Yethi has been one of the preferred QA service providers for banks, financial institutions, and insurance across the world. With expertise in the banking and financial domain, Yethi provides complete software testing solutions, especially when testing trade finance modules. It includes functional testing, non-functional testing as well as advisory services.

We have tested all the functionalities of the Modules and Submodules like Letters of Credit (Export LC & Import LC), Bank Guarantee (Inward BG & Outward BG), Bills [LC Bills (Import Collections & Export Collections) & Non-LC Bills (Import Collections & Export Collections)]. We have tested multiple Trade Finance applications like Oracle FLEXCUBE, Infosys Finacle, Intellect, and more; also covered Trade Finance products like Bill Collection, Letters of Credit, Bank Guarantee, Open Account for Trade, C2C Transactions for Trade, and B2C transactions for Trade

With its plug and play banking aware solution Tenjin, Yethi brings distinctive and intuitive features with robotic capabilities that can learn and re-learn the applications. This codeless test automation solution is easy to integrate with all banking and financial platforms and ensures holistic testing of systems and software in a quick and time-bound manner regardless of the complexities of the transactions and updates.

In a Nutshell

Whether it’s B2C transactions for trade or C2C transactions for trade, trade finance is important to secure the exporters and importers. Equally important is the functioning of the trade finance module in an accurate and hassle-efficient manner. Periodic testing of the modules ensures that there are no security threats, and the module satisfies the established quality thresholds.