Back-to-Back Letters of Credit

Search Dictionary

Definition of 'Back-to-Back Letters of Credit'

A back-to-back letter of credit (BLC) is a financial instrument used in international trade. It is a guarantee from a bank that the seller of goods or services will be paid for their products, even if the buyer defaults on the payment.

The BLC is issued by the seller's bank at the request of the buyer. The buyer then presents the BLC to the seller's bank, which will release the funds to the seller once the goods or services have been shipped and the documents have been presented.

The BLC is a safe way for buyers to ensure that they will receive the goods or services they have ordered. It is also a safe way for sellers to ensure that they will be paid for their products.

There are two types of BLCs:

* Revocable BLCs: These can be cancelled by the issuing bank at any time.
* Irrevocable BLCs: These cannot be cancelled by the issuing bank without the consent of the beneficiary.

BLCs are often used in transactions involving high-value goods or services. They can also be used in transactions where the buyer and seller are located in different countries.

Here is an example of how a BLC works:

* A U.S. company (the buyer) orders goods from a Chinese company (the seller).
* The U.S. company's bank issues a BLC to the Chinese company's bank.
* The Chinese company ships the goods to the U.S. company.
* The U.S. company presents the BLC and shipping documents to its bank.
* The U.S. bank releases the funds to the Chinese company's bank.

The BLC is a safe and secure way to conduct international trade. It protects both the buyer and the seller from fraud and non-payment.

Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.

Is this definition wrong? Let us know by posting to the forum and we will correct it.