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. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  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. ...
RELATED FAQS
  1. What's the difference between a bank guarantee and a letter of credit?

    A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure ... Read Full Answer >>
  2. What is the difference between a drawdown in banking and a drawdown in trading?

    The term "drawdown" appears in both the banking world and in the arena of trading, but it has completely different meanings ... Read Full Answer >>
  3. What are the pros and cons of online checking accounts?

    Online banking offers a convenient alternative to keeping your checking account with a brick-and-mortar bank. With an online ... Read Full Answer >>
  4. Why would you keep funds in a money market account and not a savings account?

    Most banks offer both money market accounts and savings accounts for depositors, although money market accounts are less ... Read Full Answer >>
  5. How can a reverse mortgage help wealthy and poor retirees?

    Reverse mortgages can help both wealthy and poor retirees, as they allow seniors to borrow against their home equity, receiving ... Read Full Answer >>
  6. What are the differences between revolving credit and a line of credit?

    In basic terms, revolving credit is a specific type of line of credit. A line of credit and revolving credit are financial ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  2. Credit & Loans

    The Pros & Cons Of Personal Loans vs. Credit Cards

    One is not like the other. We help you decide where to borrow money from.
  3. Budgeting

    Should You Pay Your Bills On Autopilot?

    Now that you can sign up to have your bills paid automatically online, it it a smart way to make your life more efficient? A look at the pros and cons.
  4. Personal Finance

    4 Tips To Cut Your Monthly Bank Fees

    We asked banking professions to share their biggest tips for tackling bank fees, and hopefully save more even before spring hits.
  5. Savings

    Mortgage Faceoff: Bank of America Vs. Wells Fargo

    Which bank offers the better mortgage deal? Here's how they compare on two popular types of mortgage.
  6. Savings

    Say Goodbye To Overdraft Fees

    At $35 a pop, overdraft fees can mount up quickly. Here are 4 different strategies for avoiding them.
  7. Savings

    Top Checking Accounts With No Overdraft Fees

    Choosing the right checking account could save you hundreds of dollars in fees every year.
  8. Entrepreneurship

    Funding A Startup When Bank Loans Aren't Possible

    There are alternative ways to fund your business start-up when it is not possible to secure a bank loan, but consider the costs and risks of each option.
  9. Savings

    How Foreign Transaction Fees Work

    Using a credit card when you travel can be costly. Here's what you need to know about foreign transaction fees – plus tips on making purchases abroad.
  10. Savings

    Where To Get A Mortgage If You Have Bad Credit

    Here's where to go if you have a low credit score and still want a mortgage.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center