Short Note for DAIBB- Back to Back Letter of Credit

Back-to-back letter of credit is a negotiable instrument which is issued from a buyer to a seller unconditionally where the seller can further transfer the letter of credit to his supplier. In simple words, in this type of letter of credit a seller gets an L/C (commonly known as master L/C), which he can further negotiate with his suppliers (commonly known as Back to back L/C). It helps the seller to produce his desired selling product. However, the back-to-back L/C must be opened in conformity of the master L/C.

Example of Back-to-Back Letter of Credit 

For instance, a garment product seller of UK Walmart procures its product from a Bangladeshi Company namely Bando Fashion Ltd. To make the payment instead of cash it provides a letter of credit. This is an assurance from Walmart to Bando Fashion Ltd. about the payment. To process the order Bando Fashion Ltd. needs several other raw materials, which it collects from Approach Accessories Ltd. Bando Fashion Ltd. does not pay on cash instead it hand over the original letter of credit to the intermediary bank and reissue another L/C toward Approach Accessories Ltd. The intermediary bank keep lien the master L/C while issuing the back-to-back local LCs. This transfer of Letter of Credit from one seller to another seller is Back-to-Back Letter of Credit.

Parties Involved in Back-To-Back Letter of Credit 

  • Applicant
  • Beneficiary
  • Issuing Bank
  • Confirming Bank
  • Transferring Bank
  • Advising Bank
  • Accepting Bank

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