Back-to-back letters of credit
Arrangement used by intermediaries to give payment security to their suppliers.
The beneficiary of one L/C (prime or 'master' letter of credit) offers this as security for the issue of a further L/C (second or 'slave' letter of credit) in favour of the supplier of the goods.
The bank issuing the second L/C (usually Advising bank to the prime L/C) is called the second Issuing bank.
Regarded by many banks as risky - if the prime L/C runs into problems, it will no longer serve as security for the second L/C.
Undertaking given by a bank on behalf of a customer to pay the guaranteed party a sum of money if the customer cannot or will not pay.
(Not to be confused with the payment undertaking given under a letter of credit).
A payment instrument used to make international payments.
A bill of exchange drawn on a bank.
In a letter of credit, the party to whom payment will be made.
Normally the seller or exporter.
Bill of exchange
The most commonly-used financial instrument in international trade.
An unconditional payment demand for a specific sum of money, payable either at sight or at a specified future date (term or tenor bill). Drawn up by the seller and presented to the buyer.
Also known as a draft.
Bill of lading
Transport document issued by the carrier. Serves as:
The method whereby a bill of lading is made into a freely negotiable document of title.
Any bearer of a blank endorsed bill of lading has title to the goods and may claim them from the carrier.
Insurance documents can also be blank endorsed, so that any party can make a claim if necessary.