Back-To-Back Letters of Credit

Two letters of credit, one in favor of the buyer's agent and one financing the seller. A back-to-back credit is created when an exporter holding an irrevocable Letter of Credit persuades the buyer's bank (the advising bank) to open a second credit in favor of the merchandise supplier. The two credits are identical in all respects, except that the supplier becomes the Beneficiary of the back-to-back credit, and the amount of the second credit is less than the original export credit. The difference is the import agent's commission.