Back-To-Back Letters Of Credit
Barron's Banking Dictionary:
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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.
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Back-To-Back Letters Of Credit
Investopedia Financial Dictionary:
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Back-To-Back Letters Of Credit
Two letters of credit (LCs) used together to help a seller finance the purchase of equipment or services from a subcontractor. With the original LC from the buyer's bank in place, the seller goes to his own bank and has a second LC issued, with the subcontractor as beneficiary. The subcontractor is thus ensured of payment upon fulfilling the terms of the contract.
Investopedia Says:
Like most LCs, back-to-back LCs are used primarily in international transactions, with the first LC serving as collateral for the second.
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Barron's Banking Dictionary
Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.
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