Back to Back L/C is a type of import L/C either in inland or in abroad, which open against lien on a valid export L/C.
In our country in export of garments this method of finance is widely used and is very well known to the manufacturers of garments Bangladeshi exporter received an irrevocable L/C for supply of readymade shirts from an American Bank. For manufacture of the ordered shorts the exporter does not have the required raw materials and cloths. To execute the order he is to import materials and cloths from Korea. Then the Bangladeshi Exporter will have to open an import L/C favouring Korean Supplier for import of cloths and accessories. The L/C is opened by the Bangladeshi Bank keeping the American Bank L/C in the
‘BACK’ (i.e. to fulfill the requirement of the export L/C) is called Back to Back L/C.
PROCESSING AND OPERATING OF BACK TO BACK L/C Procedure :
An exporter desires to have an import L/C limit under back to back arrangement, must have apply to the designated bank in prescribed forms for sanction for opening of Back to Back L/C. In that case the following informations are to be furnished by the applicant : -
1) Full particulars of Bank account.
2) Types of business (proprietorship, partnership, Ltd. Co.) . In case of Ltd. Co. In case of Ltd. Co. balance sheet of last 3 (three) years and the name of directors.
3) Historical background.
4) Amount of limit required.
5) Terms of payment.
6) Goods to be imported.
7) Security to be offered.
8) Repayment Schedule and source of fund.
9) Other liabilities of the customer with the bank.
10) Statement of Assets and liabilities.
11) Trade License.
12) Valid bonded warehouse license.
13) Membership Certificate
14) Income Tax declaration with TIN.
15) Memorandum & Articles of Association.
16) Registered partnership deed (if partnership firm).
17) Board Resolution.
18) Photographs (all directors)
19) Vat Registration Certificate.
On receipt of above particulars and papers, the Back to Back L/C opening section of the bank will prepare a credit report of the concerned importer/exporter. The report should be collected from their previous banker if any.
Banks prepared a credit report in prescribed forms. Bankers have to make enquiries from those if their customers and other people and enquired the report made by the banker. Sometime information are gathered by deputing marketing officer or a credit officer.
On receipt of above information, the designated branch must obtain a sanction from Head Office for opening Back to Back L/C.
In all cases the sanction must be informed to the importer for acceptance. On security confirmation
from the client that the terms and conditions of the sanction are acceptable, the subsequent documentation/charge documents are taken up.
Bank will supply the following papers/documents for opening a Back to Back L/C:
i) L/C application form. ii) LCA Form.
iii) IMP Form.
iv) Charge documents.
The above paper must be completed and signed by the party and will be verified the signatures.
For opening L/C, the client is to submit to the bank an application in the printed format of the designated bank which is also an agreement between the Importer and the Bank. The form is to be stamped under stamp act. In force in Bangladesh. The importer must submit the LCAF, IMP Insurance Cover Note and Indent/Contract/Purchase Order/Proforma Invoice (duly accepted by the importer) or more whenever required.
The L/C application must be completed/filled in and signed by the authorized person of the importer
giving the following particulars :
i) Full name and address of the suppliers or beneficiary and importer. ii) Brief description of the goods.
iii) L/C amount (CFR value) which must not exceed the LCAF value. iv) The unit price, quantity, quality of the goods.
v) Origin of the goods, prot of loading and port of destination must be mentioned. vi) Mode of shipment (Sea, Air, Truck or Rail)
vii) Last date of shipment and negotiation time (must not be beyond 30 days from the shipment date). viii) Insurance cover note number and name of the company.
ix) Tenor of draft (i.e. sight / usance / deferred etc.)
x) Mode of Advising L/C (Air/Full telex or short telex). xi) Whether shipment/transshipment is allowed.
xii) Instruction to add confirmation if required. xiii) LCAF number.
xiv) Export L/C number and date.
xv) Any other relevant information and instructions if any must be mentioned in the L/C application form.
Scrutiny/Checking of L/C application :
On receipt of L/C application it must be checked by an officer of L/C section very carefully in the following manner :
1. That the terms and conditions as stipulated in the L/C application are in order as per export L/C
lien with bank and exchange control regulation of the country and UCPDC.
2. That all the informations mentioned in above column have been furnished.
3. That the terms to be imported is eligible according to importers entitlement.
4. That all the cutting / erasing / alternation if any are authenticated by the authorized person of the company.
Confidential report of foreign suppliers :
According to exchange control regulations bankers are required to obtain confidential report of the beneficiary of L/C before opening the same, if the amount of L/C exceeds Tk. 5.00 lac. Bank can open l/C below Tk. 5.00 lac without obtaining confidential report. Bankers can write to their foreign correspondents to supply the confidential report. But from practical experience foreign correspondents of different countries do not supply the C.R. timely.
To overcome the above situation bankers can consult reference books i.e. MUNN/DUNN/BRADSTREET/ Trade Directory of various Chamber of Commerce of different countries. On receipt of confidential report from any source the banker can accumulate the same in one master file.
LCA Form :
L/C authorization form consists of six copies. 1st copy (original) for exchange control purpose, 2nd copy
customs purposes for delivery of goods, 3rd and 4th copies will be sent to the concerned licensing office.
5th copy for registration unit of the Bangladesh Bank, 6th copy is the office copy of the issuing bank.
Authorized dealer shall keep carefully till retirement of the documents.
L/C numbering :
If the L/C application and other all formalities are found in order then the serial number in the Back to Back L/C opening register. The L/C number put the L/C application form on the appropriate blank space. Enter the particulars in the L/C opening and the L/C opening commission and other charges to the realized.
L/C advising :
L/C must be typed in the printed format of a bank. After typing, L/C should again be checked up by two authorized signatories and would be despatched under their full signature, bearing signature number. Add confirmation :
Sometimes the beneficiaries of the L/C may ask for add confirmation to a L/C by and internationally reputed bank in the beneficiary’s country. The importer is to request his bank i.e. opening bank to do so in writing.
The opening bank advised the L/C through their correspondent with whose they have prior arrangement of credit line. Adding confirmation L/C is the negotiation restricted to the Bank who has added their confirmation to the credit.