What is a credit letter?

Furtives Fears are often used in commercial transactions, and especially with high value or international transactions to ensure that the buyer does not go with goods or services without paying for them. The credit letter on its back includes two letter of credit between three parties, where, for example, the seller sells its goods or services to the buyer or intermediary who turns and sells these goods or services to another buyer. In fact, the first letter of credit is the one that the final buyer for his transaction with the mediator. The middleman then uses this accreditation to ensure the second accreditation-this term, back to the back loan -za the purpose of securing the goods before the initial seller. This type of piggyback financing is a technique used by the Middemeni to secure goods from local parties, while presented as primary contact for a foreign buyer.

There are usually two banks indicate for issuing an accreditation on a transaction between Dof the bore of the sides. The buyer gives his bank - known as the issuing bank - to create an accreditation that guarantees payment as soon as the seller submits evidence that he has sent the goods. The seller also uses the bank - known as the consulting bank - to facilitate the acceptance of this payment.

conversion of this transaction into this transaction, which includes a credit letter with its backs, will submit the seller to the final credit letter for the Counseling Bank. The violation bank is asked to issue a other chart letter - and therefore became a bank for this second accreditation - in favor of a third -party supplier. The original letter of credit is used as a collateral to ensure the second letter of credit. Given that the accreditation of the highest buyer is an irrevocable gap from a reliable source, the Counseling Bank can use it to extend the loan knowing that it will be able to collect its money. The transaction becomes a change in the principleILEK and presentation of documents, where the original supplier delivers an initial buyer or mediator and collects payment for this transaction. This initial buyer turns around and becomes the seller in the second transaction, adds the goods to the final buyer and collects payment on the basis of the first letter of credit.

Back-to-back credit letter is a common tool of intermediaries. For example, in international transactions, it makes it easier to sell between local suppliers in its home country and foreign buyers sales among local suppliers. Middleman rarely wants the buyer to know that there is another party that is a source of goods, for fear of being cut out of the transaction. In this case, the intermediary or exporter of the second letter of credit for the purchase of goods from the supplier originated. This second accreditic letter is ensured on the strength of the original accreditation without informing the buyer and is usually structured to allow enough time to accept goods from the original supplier and turn them to horsethe buyer or importer.