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 Letter of Credit (L/C)?

L/C means letter of credit. The technical term for 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 of the Buyer and seller. The bank that issues the L/C is termed as Issued bank or Buyer’s bank. The bank which advice the L/C to the seller is called Advising bank or Seller’s bank. There are mainly two types L/C. these are- Master L/C and Back to back L/C. Both of those are described in the below:

L/C for Garments

L/C for Garments

What is Master L/C?

When a L/C is opened to import goods directly from the exporter is called master letter of credit. This L/C is issued by the buyer (Buyer’s bank) to manufacturer. Master LC has higher financial value than back to back L/C.

What is Back to Back L/C?

When a 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 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 supplier for the 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 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 higher financial value than Back to Back L/C.
It has lower financial value than master letter of credit.
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Mayedul Islam

Mayedul Islam is working as a Sr. Merchandiser in a reputed Buying House. He has great passion in writing different articles on textile and Garments specially on Merchandising and Garment Washing. Send email:mayedul.islam66@gmail.com

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