• Business
  • Crypto
  • Investing
  • Lifestyle
  • Money
  • Glossary
    • A
    • B
    • C
    • D
    • E
Search
Sign in
Welcome! Log into your account
Forgot your password? Get help
Password recovery
Recover your password
A password will be e-mailed to you.
Finance Reference
Quotes by TradingView
  • Business
    • What a CPA Can Do for Your Business
      Branding: A Perfect Start For Your Online Business
      How Rokt is Approaching the Customer Payment Engagement Challenge Better
      Why PPC Advertising is Good for Your Business
      Six Signs You Need to Hire Professionals to Do Your Taxes This Year
  • Crypto
    • Crypto Market Indexes: Your Ticket to Making Money Through Crypto
      10 Benefits Of Using Crypto Debit Cards
      Everything You Need to Know About Metamask
      Anti-Money Laundering Best Practices for Crypto Firms
      You Should Invest in Bitcoin and Here’s Why
  • Investing
    • Revealed: 3 best trading platforms with demo accounts
      Gold and Other Precious Metals IRA as Investment Idea
      What Makes a Successful Real Estate Transaction?
      Investing vs. Online Gambling: What’s The Difference?
      Comparing Stock Market Performance vs. Real Estate Investments Through History
  • Lifestyle
    • What You Need To Know Before Relocating to Israel
      Suggestions On How To Remodel Your Garden On A Budget
      The Top Mistakes to Avoid When Hiring a Car Accident Lawyer
      Top Tips for Snagging The Best Online Bargains
      How to Effectively Budget for a Home Renovation?
  • Money
    • Ten Ways to Make the Most of Your Cash Back Rewards
      Simple Ways You Can Reduce the Cost of Your Banks Utilities
      10 Best Passive Income Ideas to Build Your Wealth
      Efficient Funding Opportunities for New and Old Social Businesses
      10 of the Best Funding Sources For Medical Offices In 2023
  • Glossary
    • Motley Fool Stock Advisor vs Rule Breaker Investing
      Comparing Motley Fool Stock Advisor vs Rule Breaker Investing
      Adversary and Inquisitorial Systems
      Comparing Adversary and Inquisitorial Systems
      Overhead Ratio
      What Is an Overhead Ratio?
      Non-Executive Director
      Non-Executive Director: Roles and Responsibilities
      Mothballing
      What is Mothballing & When Should You Do It?
      AllABCDE
  • Glossary
  • B

Back-To-Back Letters Of Credit

By
rjonesx
-

What are ‘Back-To-Back Letters Of Credit’

Back-to-back letters of credit consist of two letters of credit (LCs) used together to finance a transaction. A back-to-back LC is usually used in a transaction involving an intermediary between the buyer and seller, such as a broker, or when a seller must purchase the goods it will sell from a supplier as part of the sale to his buyer. Next Up Straight Credit Letter Of Credit Purchase-Money Mortgage Fully Funded Documentary Letter …

Explaining ‘Back-To-Back Letters Of Credit’

The back-to-back LC is actually made up of two distinct LCs, one issued by the buyer’s bank to the intermediary and the other issued by the intermediary’s bank to the seller. With the original LC from the buyer’s bank in place, the broker goes to his own bank and has a second LC issued, with the seller as beneficiary. The seller is thus ensured of payment upon fulfilling the terms of the contract and presenting the appropriate documentation to the intermediary’s bank. In some cases, the seller may not even know who the ultimate buyer of the goods is.

Example of a Back-to-Back LC Transaction

For example, assume that Company A is in the U,S, and sells heavy machinery. Broker B, a trading firm based in London, has learned that Company C, which is located in China, wants to purchase heavy machinery and has managed to broker a deal between the two companies. Company A is eager to sell but does not want to take on the risk of default of payment by Company C. Broker B wants to ensure that the trade is made and that is receives its commission.

Further Reading

  • Documentary Letters of Credit, Legal Nature and Sources of Law – www.ceeol.com [PDF]
  • Transfer and Assignment of Letters of Credit Under the Uniform Commercial Code – heinonline.org [PDF]
  • Letters of credit and illegal contracts: the limits of the independence principle – heinonline.org [PDF]
  • Irrevocable Letters of Credit and Third Party Fraud: The American Accord – heinonline.org [PDF]
  • How to Use Letters of Credit in Financing the Sale of Goods – heinonline.org [PDF]
  • Letters of Credit in the United States Construction Industry – heinonline.org [PDF]
  • The Uniform Commercial Code in Minnesota: Article 5–Letters of Credit – heinonline.org [PDF]
  • The content and classification of the concepts of trade finance and documentary operations – www.fin-izdat.com [PDF]
  • Bank Guarantees and Letters of Credit: Time for a Return to the Fold – heinonline.org [PDF]
Previous articleBalance Sheet Reserves
Next articleBear Market
rjonesx

RELATED ARTICLESMORE FROM AUTHOR

Motley Fool Stock Advisor vs Rule Breaker Investing

Comparing Motley Fool Stock Advisor vs Rule Breaker Investing

Adversary and Inquisitorial Systems

Comparing Adversary and Inquisitorial Systems

Overhead Ratio

What Is an Overhead Ratio?

EDITOR PICKS

Obsolete Inventory

Should I invest in additional life coverage?

Joint Supply

Earnings Before Tax (EBT Formula)

FAAMG Stocks

Quarter (Q1, Q2, Q3, Q4)

Latest

What You Need To Know Before Relocating to Israel

Revealed: 3 best trading platforms with demo accounts

Gold and Other Precious Metals IRA as Investment Idea

Comparing Motley Fool Stock Advisor vs Rule Breaker Investing

What a CPA Can Do for Your Business

Branding: A Perfect Start For Your Online Business

  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • J
  • K
  • L
  • M
  • N
  • O
  • P
  • Q
  • R
  • S
  • T
  • U
  • V
  • W
  • X
  • Y
  • Z
  • About
  • Accessibility
  • Privacy
  • Sitemap