What is Back to Back Letter of Credit?
Answers: Back to Back Letter of Credit:
A back-to-back letter of credit is a foreign credit. It is different from the original credit base on which the bank undertake the risk under the back-to-back credit. In this luggage the bank’s main surety/ warranty is the original credit. The resourceful credit (selling credit) and the back-to-back credit (buying credit) are separate instruments independent of each other and within no way justifiably connected, although they both form part of one and the same business operation. The supplier (beneficiary of the back-to-back credit) ships goods to the importer or supplies stuff to the exporter and presents documents to the bank as is specified within the credit. It is intended that the exporter would substitute hiss own documents and ships the goods to the importer, if mandatory and present documents for negotiation under the imaginative credit, his liability under the back-to-back credit would be used to out of these proceeds. The export L/C is marked lien and no edge is taken.
Back-to-Back Letter of Credit (L/C) is a type of Import L/C either within inland or in in a foreign country, which open against lien on valid export L/C.
In any country contained by export of garments, this method of finance of widely used and is immensely well agreed to the manufactures of garments. Country exporters received an irrevocable Letter of Credit (L/C) for supply of readymade shirts, from an American Bank. For creation of the ordered shirts the exporter does not have the required untreated materials. To execute the order he is to introduction raw materials from Korea. Then the country exporter will own to open an introduction Letter of Credit (L/C) favoring country supplier for of fabrics and paraphernalia. The Letter of Credit (L/C) is opened by the any Country Bank lien against the American Banks Letter of Credit (L/C) lower than bonded warehouse system.
Processing and Opening of Back-to-Back Letter of Credit:
An exporter desired to have an Import L/C shorten under Back-to-Back arrangement. In that shield the following papers & documents are required:
Full Particulars of Bank Account.
Balance Sheet.
Statement of Assets & Liability.
Trade License.
Valid Bonded Warehouse License.
Membership Certificate.
Income Tax Declaration.
Memorandum of Articles.
Partnership Deed.
Resolution.
Photographs of Al Directors.
On receipt of above documents and papers the Back-to-Back Letter of Credit space section will prepare a credit report. Branch must come by sanction from Head Office for Opening Back to Back L/C.
Back-to-Back Letter of Credit opened in need Head Office concern because of valued clients of the Bank. In that case an officer of Foreign Exchange Department will convey a Post to the Head Office for the opened Back-to-Back Letter of Credit
Exporters prepare the documents and submit indistinguishable to the Bank for negotiation.
Looks like here are 2 meanings to the residence.
TRUE:
Back-to-Back Letters of Credit are used in international and domestic trade. The party to a Back-to-Back Letter of Credit are:
1. the buyer and his bank as the issuer of the untested LETTER OF CREDIT,
2. the seller/manufacturer and his bank,
3. the manufacturer's subcontractor and his wall.
This type of credit transaction is used when a seller/manufacturer has to purchase a component or fruit farm out part of the creation of a product, but may not have the change flow to do so.
In this case, the seller/manufacturer applies to his edge for a letter of credit, transposable to the original Letter of Credit he received from the Buyer, except that it is for a less important value. This second message of credit, called a Back-to-Back, is sent to the subcontractor's edge and therefore the subcontractor know that he will be paid and can proceed near his part of the transaction - supplying components or service to the businessman.
SCAM:
In the UNDERGROUND NETWORK, requests for Back-to-Back Letters of Credit are very adjectives. They are requested as a means of guaranteeing commissions to INTERMEDIARIES. The commission is supposed to be the difference between the asking price of the commodity and the selling price.
In certainty, a Back-to-Back Letter of Credit can be used in this behaviour - to guarantee the payment of commissions to an importer or exporter acting as agent for the Buyer or Seller. The agent can request his dune to make arrangements next to the seller's bank to issue the credit, however the agent must be on excellent vocabulary with his investor in lay down for the request to honored.