What Is Back-to-Back Credit?

In trade practice, the middleman has signed supply and purchase contracts with actual users and actual suppliers. When the actual user opens a non-transferable letter of credit to the middleman, the middleman cannot directly transfer this letter of credit, but can request that Relevant banks take the L / C as a guarantee and use it as an applicant to issue a L / C with the actual supplier as the beneficiary. This letter of credit is Back to Back Credit.

Back to back letter of credit

Transferable letters of credit and back-to-back letters of credit have many similarities in the handling of business, but there are fundamental differences in nature, that is, the original letter of transferable letter of credit and the new letter of credit opened are the same letter of credit. That guarantees that the payment is the original

Back to back

1. Back to back

A transferable letter of credit means that the letter of credit is marked "Transferable", and the beneficiary has the right to transfer all or part of the letter of credit to one or more third parties (that is, the second beneficiary) for use. The beneficiaries of transferable letters of credit are generally middlemen, and the second beneficiaries are the actual suppliers.

The beneficiary may require the authorized bank (transfer bank) in the L / C to issue a new certificate to the second beneficiary, and the original issuing bank shall bear the payment responsibility. The terms of the original certificate are unchanged, but the amount of the letter of credit and the unit price of the goods can be reduced, the validity period and the shipping period can be advanced, the insurance ratio can be increased, and the applicant can be changed by the original beneficiary. A negotiable letter of credit can only be transferred once, that is, the second beneficiary cannot be transferred to a new beneficiary. In the process of use, when the second beneficiary presents the document to the assigning bank, the first beneficiary has the right to replace the invoice and bill of exchange of the second beneficiary with its own invoice and bill of exchange to obtain the original certificate and the new certificate. difference.

Back to Back Credit means that the beneficiary takes the original certificate as collateral and requires the bank to open another letter of credit with similar content based on the original certificate. Back-to-back letters of credit are usually opened by the middleman to the actual supplier. The back-to-back letter of credit is used in a similar way to a transferable letter of credit, except that the original issuing bank has not authorized the beneficiary to transfer and is therefore not responsible for the new certificate. The beneficiaries of back-to-back letters of credit can be foreign or domestic.