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MASTER LC & B2B LC-COMMERCIAL

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. 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 an Issued bank or Buyer's bank. The bank that advises the L/C to the Seller is called an 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 the manufacturer prepares an L/C to collect raw materials for production from the suppliers is called Back-to-Back LC. 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.

The manufacturer prepares this type of L/C to collect raw materials from raw materials suppliers for production.

02

Issued Bank

Issued by the Buyer's bank.

Published by the manufacturer's bank.

03

Types of L/C

It is an introductory 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 monetary value than the master letter of credit.

 

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