bank to back L/c
Post 1 of 3
Dear Friends
I would like to know that can I open a back to back L/c that is L/c against L/c of my customer.
Madhur Agarwal
I would like to know that can I open a back to back L/c that is L/c against L/c of my customer.
Madhur Agarwal
09 Jul 2007 06:49
Post 2 of 3
Replying to [Madhur_Agarwal]:
I have just posted an article on Back-to-Back LC. Please have a look.
To answer your question:
(a) A Back-to-Back LC is like any other LC, subject to UCP 600. There is no formal link between the original and the Back-to-Back LC. UCP does not have any separate provisions for "Back-to-Back LC". The SAME rules apply.
(b) Your bank should agree to open the LC. To do so, the bank would go through the usual formalities as it does for any application to open an LC. It will observe the normal credit assessment procedure, and approval of the LC limit, because it is taking a credit risk on you (i.e. your ability to pay when the documents under the Back-to-Back LC is due for payment).
(c) Therefore, you'd have to apply to the bank, comply with its formalities, and on its approval, the LC will be opened on your supplier.
The existance of the original LC gives a comfort to you and your bank - only to say that payment to you would be assured once you have shipped the goods. No more and no less. The original LC has no further value.
Do remember that there is an inherent risk associated with Back-to-Back LCs. You, as the beneficiary of the original LC, may hope to pay for the documents under the Back-to-Back LC from the proceeds of the funds from exports under the original LC. IF (a big IF) proceeds from the original LC is unfortunaltely delayed, you'd still have to pay under the Back-to-Back LC.
Do make sure that your cash-flow does not come under pressure as a result. So time the LCs accordingly (suggest DA Back-to-Back LC, and a * or sight original LC).
Good luck!
I have just posted an article on Back-to-Back LC. Please have a look.
To answer your question:
(a) A Back-to-Back LC is like any other LC, subject to UCP 600. There is no formal link between the original and the Back-to-Back LC. UCP does not have any separate provisions for "Back-to-Back LC". The SAME rules apply.
(b) Your bank should agree to open the LC. To do so, the bank would go through the usual formalities as it does for any application to open an LC. It will observe the normal credit assessment procedure, and approval of the LC limit, because it is taking a credit risk on you (i.e. your ability to pay when the documents under the Back-to-Back LC is due for payment).
(c) Therefore, you'd have to apply to the bank, comply with its formalities, and on its approval, the LC will be opened on your supplier.
The existance of the original LC gives a comfort to you and your bank - only to say that payment to you would be assured once you have shipped the goods. No more and no less. The original LC has no further value.
Do remember that there is an inherent risk associated with Back-to-Back LCs. You, as the beneficiary of the original LC, may hope to pay for the documents under the Back-to-Back LC from the proceeds of the funds from exports under the original LC. IF (a big IF) proceeds from the original LC is unfortunaltely delayed, you'd still have to pay under the Back-to-Back LC.
Do make sure that your cash-flow does not come under pressure as a result. So time the LCs accordingly (suggest DA Back-to-Back LC, and a * or sight original LC).
Good luck!
11 Jul 2007 02:32
Post 3 of 3
Dear
You cannot open back to back L/C from India,because risk is involve there. We can provide you buyers Credit at LIBOR Rates +,if you require. If you have L/c Limit. We are export-Import Consultant based in New Delhi.
Thanks
B.Prakash
14 May 2009 03:35
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