Back-To-Back Letters Of Credit

AAA

DEFINITION of '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 EXPLAINS 'Back-To-Back Letters Of Credit'

Like most LCs, back-to-back LCs are used primarily in international transactions, with the first LC serving as collateral for the second.

RELATED TERMS
  1. Synthetic Letter Of Credit

    A letter of credit that has been pre-funded by the bank on the ...
  2. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  3. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
  4. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  5. Letter Of Guarantee

    1. A type of contract issued by a bank on behalf of a customer ...
  6. Bank Letter Of Credit Policy

    An insurance policy that allows U.S. banks to confirm letters ...
Related Articles
  1. Will Corporate Debt Drag Your Stock ...
    Investing Basics

    Will Corporate Debt Drag Your Stock ...

  2. What's the difference between a bank ...
    Investing

    What's the difference between a bank ...

  3. Bag The Best Bank Account
    Insurance

    Bag The Best Bank Account

  4. Tired Of Banks? Try A Credit Union
    Retirement

    Tired Of Banks? Try A Credit Union

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center