Major Comparison between Master L/C and Back to Back L/C
What is a Letter of Credit (L/C)?
L/C means a letter of credit. The technical term for a letter of credit is ‘Documentary credit’. It is a common word for merchandisers in apparel merchandising. L/C is a payment term generally used for international sales transactions. It should be mentioned that L/C deals only in documents but not goods. L/C works in favor of both the Buyer and the seller. The bank that issues the L/C is termed as Issued bank or Buyer’s bank. The bank that advises the L/C to the seller is called Advising bank or Seller’s bank. There are mainly two types of L/C. these are- Master L/C and Back to back L/C. Both of those are described below:
L/C for Garments
What is Master L/C?
When an L/C is opened to import goods directly from the exporter is called a master letter of credit. This L/C is issued by the buyer (Buyer’s bank) to the manufacturer. Master LC has a higher financial value than back to back L/C.
What is Back to Back L/C?
When an L/C is prepared by the manufacturer to collect raw materials for production from the suppliers is called Back to Back L/C. Back to Back letter of credit has a 70-80% financial value of master LCs.
Kay Difference between Master L/C and Back to Back L/C:
SL No. | Subject | Master L/C | Back to Back L/C |
01 | Definition | This type of L/C is prepared by the buyer to import goods from the manufacturer. | This type of L/C is prepared by the manufacturer to collect raw materials from raw materials suppliers for production. |
02 | Issued Bank | Issued by the buyer’s bank. | Issued by the manufacturer’s bank. |
03 | Types of L/C | It is a basic letter of credit or L/C. | It depends on the master letter of credit |
04 | Purpose | To import goods from the manufacturer. | To collect raw materials from the Raw material suppliers. |
05 | Financial Value | It has a higher financial value than Back to Back L/C. | It has a lower financial value than the master letter of credit. |
Mayedul Islam is a Founder and Editor of Garments Merchandising. He is an Expert in Garments Merchandising. Writing is his passion. He loves to write articles about Apparel, Textile and Garment Washing specially on Merchandising. Mail him at mayedul.islam66@gmail.com
Its good help for us.
Good article and more informative. I want to add another important point.
Collateral or security kept against master LC is cash margin or any property while in back to back LC, collateral will be master LC and master LC should have a clause, to negotiate, kept as collateral, in LC document
Hi,
I like this article for it simplicity and informative nature.
Thanks a lot.
With regards,
Sir, pls tell me at sight l/c or sight l/c.
good article
Master LC opened to other customer out of Bangladesh, transferred to Bangladesh buying house, endorsed for commission and Back to Back LC is opened for fabrics & Trims. Is this legal as per Bangladesh Bank laws?
This is money of Bangladesh manufacturing Factory ,Buying office commission is endorsed in any case
Its vary good idea.tnx.
thx a lot……
good article
Dear,
I’m very delighted t o be here after getting the basic concept & honestly speaking that
i absolutely benefited on your draft.
Thanks.
All Back to Back LC must have a Mastar LC which is mention in it.
This is very Beneficial draft ,Thanks a lot .