The Risk And Precaution Research On Transferable Credit And Back-to-Back Letter Of Credit

The letter of credit (L/C) is a method of settlement that uses more in China’s foreign trade business, and also an important part of bank’s international settlement business. Enterprises can achieve their goals of avoid commercial risks through L/C. For banks, they can also provide services for enterprises that involved in the import and export business, to promote the development of foreign trade. Transferable Credit and Back-to-Back Letter of Credit are two special kinds in a wide variety of L/C products, they are easily to confuse and prone to disputes in practical operation.In the practical operation, Transferable Credit and Back-to-Back Letter of Credit both involved middlemen and importer’s goods actually supplied by actual delivery. In the transaction, firstly they all require importer to open the original certificate, then their middlemen will based on the original certificates derive new certificates that beneficiaries are the actual suppliers through related operations. Although on the surface they both need two transactions, and both involves three parties (importer, middlemen and the actual supplier),essentially these both belong to one settlement. Because of so many similarities, it’s very common to confusion in using these two L/Cs. Compared with general L/C business, since the operation in the use of procedures and links of Transferable Credit and Back-to-Back Letter of Credit are more complex, plus their different nature, enterprises will certainly have different risks. Only through detailed analysis, find out their similarities and differences, can effectively help enterprises to make right choice and use the two L/Cs well.The article’s discuss against the comparative analysis of Transferable Credit and Back-to-Back Letter of Credit, use the method of comparative analysis, theoretical studies, case studies, the provisions of the UCP600throughout the text’s analysis, highlights different risks faced by the importers, brokers, suppliers, the issuing bank and intermediary bank in two L/Cs and propose solutions, in order to provide references for the parties correctly select the two L/Cs in international trade practice.