Back to Back Credit

Back to Back Credit :

Such credits are also called countervailing credits. These are usually opened to finance an intermediary who is short of capital but is not willing to divulge to his overseas buyer the name of the actual supplier. A banker issues such a credit in favour of the actual supplier on the strength of a credit established by the overseas buyer in favour of the intermediary. A back-to-back credit naturally stipulates an earlier validity date and a smaller amount to enable the beneficiary (intermediary) to replace the actual supplier's invoice by his own and earn a margin of profit While granting such facilities, a banker requires to ensure itself that the documents to be submitted by the actual supplier and the substituted ones conform precisely to the terms of the credit established by the overseas buyer.

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