Back-To-Back Letter Of Credit

Back-To-Back Letter Of Credit

Summary of Back-To-Back Letter Of Credit

A letter of credit raised to purchase goods that will be sold under a different letter of credit. A broker or other intermediary who is the beneficiary under a customer's letter of credit may use that credit as collateral to open a second letter of credit to actually purchase the goods it plans to sell. Under such circumstances, the documentary requirements of both letters of credit must be the same, except that the broker may substitute his invoice for the one supplied by the manufacturer of the goods.

(Main Author: William J. Miller)


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