back to back letter of credit (L/C) definition

back to back letter of credit (L/C)

Arrangement in which one irrevocable L/C serves as the collateral for another; the advising bank of the first L/C becomes the issuing bank of the second L/C. In contrast to a 'transferable letter of credit,' permission of the ultimate buyer (the applicant or account party of the first L/C) or that of the issuing bank, is not required in a back-to-back L/C. It is used mainly by middlemen (intermediaries) to hide the identity of the actual supplier or manufacturer. Also called counter credit or reciprocal letter of credit.

back to back letter of credit (L/C) is in the Banking, Commerce & Finance and International Trade & Relations subjects.

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