How Do Back-to-Back Letters of Credits Work?

Back-to-back letters of credit enable a seller to receive payment from the buyer's bank while using the same letter of credit to secure payment for the supplier involved in the transaction.

Oct 17, 2024 at 03:11 am

How Do Back-to-Back Letters of Credits Work?

1. Issuance of the Master Letter of Credit (MLC)

The buyer's bank (issuing bank) issues a MLC promising payment to the seller's bank (advising/confirming bank) upon the presentation of certain documents.

2. Confirmation or Advice of the MLC

The advising/confirming bank receives the MLC and either confirms its authenticity and irrevocability (confirmed MLC) or simply advises the seller of its existence (advised MLC).

3. Issuance of the Back-to-Back Letter of Credit (BBC)

The seller's bank (issuing bank for the BBC) issues a BBC to the supplier (beneficiary of the BBC). This BBC guarantees payment to the supplier upon the presentation of specified documents (e.g., shipping documents, invoices).

4. Connection Between the MLC and BBC

The BBC is linked to the MLC through a specific clause, typically stating that the BBC is "authorized but not guaranteed by" the MLC. This means that the BBC is valid and will be honored only if the MLC is valid and honored.

5. Presentation of Documents

The supplier presents the required documents under both the BBC and the MLC to the seller's bank (confirming bank of the BBC).

6. Review and Payment

The seller's bank reviews the documents for compliance with both the BBC and the MLC.
If all documents are in order, the seller's bank pays the supplier under the BBC.
The seller's bank then presents the same documents to the buyer's bank (issuing bank of the MLC) for reimbursement under the MLC.

7. Reimbursement

If the buyer's bank finds the documents satisfactory, it reimburses the seller's bank the amount paid to the supplier under the BBC.

Benefits of Back-to-Back Letters of Credit:

Reduced Risk for the Buyer: The buyer has the security of the MLC, ensuring that the supplier will receive payment.
Facilitated Payment Chain: The BBC allows for multiple parties to be involved in the transaction, ensuring timely and efficient payment.
Improved Trade Relationships: The use of a BBC can foster trust and cooperation between the buyer, seller, and supplier.

Disclaimer:info@kdj.com

The information provided is not trading advice. kdj.com does not assume any responsibility for any investments made based on the information provided in this article. Cryptocurrencies are highly volatile and it is highly recommended that you invest with caution after thorough research！

If you believe that the content used on this website infringes your copyright, please contact us immediately (info@kdj.com) and we will delete it promptly.

Fear & Greed Index

Trade Now

Biggest Gainers

AIC

$0.3576

59.66%

Trade Now
BTG

$9.3594

55.69%

Trade Now
USUAL

$0.4041

29.23%

Trade Now
JASMY

$0.0325

27.87%

Trade Now
DEXE

$20.6826

23.80%

Trade Now
ACH

$0.0463

22.21%

Trade Now

Latest Crypto News

El Salvador Removes Bitcoin's Legal Tender Status, Citing IMF Agreement
2025-01-31 10:45:53
Solana (SOL) Price Rises 21% in a Week, Nearing $300
2025-01-31 10:45:53
Texas Builds On Crypto-Friendly Foundation to Establish Bitcoin Reserve
2025-01-31 10:35:54
Discover the Next Crypto Sensation: ICOs You Can’t Afford to Miss!
2025-01-31 10:35:54
HYPE Is Poised for a Breakout as February Begins, Targeting a 50% Surge
2025-01-31 10:35:54
The SEC Approves the Bitwise Bitcoin and Ethereum ETF
2025-01-31 10:35:54

Related knowledge

What is the purpose of collecting usdt at a high price?

Jan 24,2025 at 01:12pm

Key Points of the Article:Understanding the motivations behind USDT accumulation at a premiumExploring the potential consequences and risks of this strategyAnalyzing the long-term viability and sustainability of USDT accumulationIdentifying alternative approaches to USDT acquisitionUnderstanding the Purpose of USDT Accumulation at a High PriceMarket Man...

Can btc be converted to usdt before it can be sold?

Jan 28,2025 at 07:12am

Can BTC be Converted to USDT Before It Can Be Sold?Key Points:Understand the nature of BTC and USDT.Explore the conversion process from BTC to USDT with different platforms.Examine the potential advantages and drawbacks of converting BTC to USDT before selling.What are BTC and USDT?BTC (Bitcoin): A decentralized, peer-to-peer digital currency with limit...

Time limit for redemption of USDT by TEDA Company

Jan 24,2025 at 10:01pm

Time Limit for Redemption of USDT by TEDA CompanyKey Points:TEDA Company's USDT redemption time limitImplications of the time limitSteps to redeem USDT within the time limitFAQs on USDT redemption by TEDA CompanyTime Limit for USDT Redemption by TEDA CompanyTEDA Company, a major cryptocurrency exchange in China, has imposed a time limit on the redemptio...

Will USDT fall after the virtual currency surges?

Jan 30,2025 at 05:54am

Key PointsUnderstanding Tether's Stability and the Factors Influencing itAnalyzing Crypto Market Dynamics and their Impact on USDT PriceAssessing the Role of Market Sentiment in USDT's PerformanceExamining Regulations and Legal Considerations Affecting USDTExploring Potential Risks and Mitigating StrategiesWill USDT Fall after the Virtual Currency Surge...

Withdraw USDT from Ouyi

Jan 24,2025 at 01:31pm

How to Withdraw USDT from OuyiKey Points:Log into your Ouyi account.Navigate to the "Assets" tab.Select "USDT" from the list of currencies.Click "Withdraw."Enter the recipient's wallet address.Enter the amount of USDT you wish to withdraw.Select the withdrawal network (e.g., TRC-20, ERC-20).Review the withdrawal details and confirm the transaction.Step-...

trx withdrawal usdt

Jan 25,2025 at 05:30pm

TRX Withdrawal USDT: A Comprehensive Guide to Withdrawing TRX from USDT Accounts on Popular Cryptocurrency ExchangesKey PointsA step-by-step guide to withdrawing TRX from USDT accounts on leading cryptocurrency exchanges.Insights into choosing the best exchange for TRX withdrawal to optimize fees and security.Security measures and best practices for pro...