BACK to Back Letters of Credit (BB L / C) Transactions | Export-Import Doc
Letter of credit is important tools in export-import business and today i am willing to share with you a new knowledge topic BACK to Back Letters of Credit (BB L / C) Transactions | Export-Import Doc in deep.
Dear Export-Import Members, In previous articles we were discussed
- What Is Letter Of Credit ( L/C) | Export Import Document for Payment term
- Step for Opening Letter Of Credit L / C | Export Import Document Payment
Now here we are talking about Back to Back Letter of credit process, benefits, system, parties, etc. full features of topic BACK to Back Letters of Credit (BB L / C) Transactions | Export-Import Doc
BACK to back Letters of Credit (BB L / C) are L / C opened based on and guaranteed by the received L / C (Master L / C). The requirements stated in the BB L / C must be the same as those required in the Master L / C, namely the quantity, type and quality of goods, the port of loading, destination port, date of the last shipment, and type of custom document requested.
What is different is the price stated in the draft (draft) and Commercial invoice (invoice). In the Master L / C, the draft and invoice values are greater than those contained in the BB L / C BACK to back Letters of Credit.
The Master L / C itself is the L / C received from the issuing bank which is used as the basis and guarantee for the opened L / C (BB L / C). Now look in the topic BACK to Back Letters of Credit (BB L / C) Transactions | Export-Import Doc
The following description of the five main things that must be considered:
Before a BB L / C BACK to back Letters of Credit transaction is carried out, the bank must pay attention to the reputation of the customer concerned, including: (1) meeting In Bank (BI) requirements regarding Know Your Customer Principles and not walking customers; (2) has a good reputation; (3) have experience handling export documents.
2. Master L / C –
Banks must check whether the received L / C (Master L / C) is subject to UCPDC and the requested requirements can be met when the export is carried out. Master L / C that can be accepted and used as collateral for BB L / C BACK to back Letters of Credit transaction must meet the following requirements:
- The Master L / C is opened by a correspondent bank
- Subject to UCPDC
- The value of money in the Master L / C must be greater than the value of the L / C to be opened (BB L / C) BACK to back Letters of Credit transaction
- The expiry date must be longer than the L / C to be opened
- The Master L / C must contain the requirements “Third-party documents acceptable”
3. Opening of BB L / C – BACK to back Letters of Credit transaction
When opening an BB L / C, the officer must be absolutely sure that all of the opened L / C requirements can meet the requirements of the Master L / C (no discrepancy will occur).
To simplify the process, we recommend using the “BB L / C Opening Worksheet“. The worksheet consists of two columns, the left column containing information about the Master L / C and the right column containing information about the L / C to be opened.
If there are Master L / C requirements that cannot be met, the bank must request changes to the opening bank of the Master L / C. Because there is a time difference between the payment for the L / C opened (earlier) and the payment to be received from the negotiation of the Master L / C negotiation notes, this transaction is categorized as a transaction with bank facilities.
Therefore, it must be processed as well as credit with a guarantee of the Master L / C (if necessary additional collateral is requested) and terminated officials who have the authority to decide on credit.
4. Inspection and payment of BB L / C documents
The bank checks whether the documents received are in accordance with the requirements of the L / C opened. If there is no discrepancy, the bank makes a payment to the negotiating bank if the L / C opened is conditional to sight, or accepts if the L / C is usance.
The customer is informed that the documents required in the BB L / C – BACK to back Letters of Credit transaction have been received and the customer is asked to submit a draft and invoice, while other documents are retained by the bank for the purposes of negotiating the L / C Master Bill.
5. Negotiation of the notes for the Master L / C
After receiving a draft and invoice from the customer completed with shipping documents in the bank (B / L, packing list, certificate of origin, etc.), the bank carries out an inspection. If there is no discrepancy, the bank negotiates a money order negotiation (takes over) if the Master L / C is in sight. If the Master L / C is usance, the bank makes a discount. The results of the money order negotiation are used to pay off obligations for the BB L / C payment. The excess proceeds after the fee is paid to the customer.
Types of back to back L / C – BACK to back Letters of Credit transaction
transactions There are 4 types of BB L / C transactions, namely:
+ Sight against sight : opening BB L / C sight is based on and guaranteed Master L / C that is conditional sight.
+ Sight against usance: opening BB L / C sight based on and guaranteed usance Master L / C.
+ Usance against usance : The Opening of BB L / C usance is based on and guaranteed by a usance conditional Master L / C.
+ Usance against sight : The opening of BB L / C usance is based on and guaranteed Master L / C that is conditional sight.
Risks and benefits of back to back L / C
The risks and benefits derived from BB L / C transactions are as follows. First, the risk of handling BB L / C is quite large if the handling is not careful. This can cause unpaid bills because the main collateral is Master L / C.
Second, the benefits obtained in the form of L / C opening proposition, interest, ie from the payment to the negotiating bank for the L / C opened until receipt of payment from the Master L / C opening bank, the point of negotiation of the notes and the deposition of funds in the form of a fixed deposit on the proceeds reached obtained from the Master L / C if the BB L / C is opened usance against sight.
In handling BACK to back Letters of Credit transaction – BB L / C transactions, an understanding of the L / C provisions stipulated in UCPDC requires understanding, careful examination of documents and responsiveness. If any Master L / C requirements are found that cannot be met, changes are immediately requested.
So, Export Import Document means the legal structure of your export-import business. Letters of Credit transaction is a very important tool and worldwide acceptance payment mode for export-import shipment.
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