Back to back letter of credit are basically documents that are issued by the buyer’s agent and then reviewed and reissued by the financer of the seller. It is a connecting agreement that brings the buyer and seller on the same page. The terms and conditions of the transactions are clearly stated in the document. Also, the bank holds full responsibility for the payment and even promised to pay on behalf of the client in case of a loss.
Where Can These Letters of Credit Be Used?
The letters of credit are usually used in financial transactions and foreign trade. The back to back LCs can be used in similar scenarios. These tools work well for foreign export, import businesses because it enhances the credibility of the transaction and ensures that all the parties are satisfied with the terms. These letters can also be seen as a measure to regulate the policies of trading and ensure that there is no foul play involved.
Top Benefits of Letters of Credit
Back to back letters of credit are a smart, convenient and quick way to ensure foreign exchanges between two countries. The original letter of credit is issued by the bank on behalf of the client, while the other letter is drafted by the broker who has his own banking support. Here are some basic benefits of back to back letters of credit;
Back to back letters of credit reduce the pressure on all the parties involved in the transaction from the buyer to the seller. It also is a reassurance of sorts that the payment will be completed by the bank in case their client is unable to meet the terms of the agreement.
With the bank backing up the exchange, the agreement becomes more credible and reliable for the seller who has to receive the payment. The letters are usually used as a last resort in case there are bad debts for the buyer
Assurance and Effectiveness
Back to back letter of credits are also very time effective and affordable as the banks take care of the drafting and other services for you. Clients can refer to their agents and market experts for advice. You can even visit the website of the banking platform and read through the reviews as they are an authentic source of information for users.