Back-To-Back Letters Of Credit


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.

BREAKING DOWN '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.

  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. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  4. Bank Letter Of Credit Policy

    An insurance policy that allows U.S. banks to confirm letters ...
  5. Letter Of Guarantee

    1. A type of contract issued by a bank on behalf of a customer ...
  6. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
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