What is the Difference between Master L/C and Back to Back L/C?
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:
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:
Back to Back L/C
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.
Issued by the buyer’s bank.
Issued by the manufacturer’s bank.
Types of L/C
It is a basic letter of credit or L/C.
It depends on the master letter of credit
To import goods from the manufacturer.
To collect raw materials from the Raw material suppliers.
It has a higher financial value than Back to Back L/C.
It has a lower financial value than the master letter of credit.