Analysis of the letter of credit transfer process and key points in cross-border e-commerce

In cross-border e-commerce, Back to Back Credit is an important financial tool. A reissued letter of credit, also known as a reverse letter of credit, refers to the beneficiary requesting the advising bank or other bank of the original letter to issue a new letter of credit with similar content based on the original letter of credit. This process involves multiple parties, the beneficiary can be a domestic or foreign enterprise, and the issuance of a new certificate must be based on an irrevocable letter of credit.

In actual transactions, a reissued letter of credit is usually suitable for middlemen to resell other people’s goods to obtain profits, or to conduct transactions through a third party when the import and export trade cannot be handled directly between the two countries. This trade model involves two sales contracts signed by the importer, middleman and exporter. The letter of credit issued based on the first contract signed by the intermediary and the importer is called the original letter of credit, while the new letter of credit issued based on the second contract signed between the intermediary and the exporter is called the original letter of credit. A transferred letter of credit, also known as a subordinate letter of credit (Subsidiary Credit).

In the process of transferring a letter of credit, the beneficiary of the original letter of credit is also the applicant for the transferred letter of credit. The advising bank of the original letter of credit is generally also the issuing bank of the transferred letter of credit. It is worth noting that after a new letter of credit is issued, the original letter of credit will still be valid.

As for the content of the reissued letter of credit, although the terms such as the issuer, beneficiary, amount, unit price, shipping period and validity period may change, most of the terms are usually consistent with the original credit. Usually, the amount of the original letter of credit is higher than the transferred letter of credit, and the difference is the middleman’s profit or commission. In addition, the shipping period of the transferred letter of credit must be earlier than the original letter of credit. The beneficiary of the reissued letter of credit shall perform the obligation to present documents in accordance with regulations. After payment, the issuing bank will require the beneficiary of the original letter of credit to provide commercial invoices and bills of exchange that comply with the terms of the original letter of credit to facilitate the corresponding exchange of goods and collection of foreign exchange. .