AVP,Feculty Member, SIBL,TI

BACK TO BACK LC

Md. Makhluk Hasan

AVP,Feculty Member, SIBL,TI

BACK TO BACK L/C is which is backed by Export L/C or Master L/C. 1. Ready-made garment industries and specialized Textile units have been allowed the facility of importing fabrics and other materials needed for manufacture of garments/ specialized textiles, free of duty under bonded warehouse license system against back to back L/C arrangement, without involving cash foreign exchange from Bangladesh sources. The Bangladesh Bank has, therefore, allowed the ADs to open back to back L/C for importing of raw materials by the Readymade Garments Industry/Specialized Textile Units, to carry out their export orders against export L/C. The branches should follow in this regard, all the usual exchange control and trade control regulations as required in case of opening normal Import L/C.

What is export?

Investopedia says “An export is a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output.”

Wikipedia says : In international trade, "exports" refers to selling goods and services produced in the home country to other markets. Export of commercial quantities of goods normally requires involvement of the customs authorities in both the country of export and the country of import.

Businessdictionary define export: To send goods or services across national borders for the purpose of selling and realizing foreign exchange.

General Characteristics

Back to Back LCs is issued on behalf of a customer against the security of Export LCs for procurement of raw materials either locally or from abroad and makes timely shipments. The customer is entitled to open BTB LC 75% to 100% of the FOB value of the Export LC. More than one BTB import LC can be issued against one or more export LCs.
The Government of Bangladesh has advised a special procedure under which the export oriented garment units are allowed to import their raw materials free of duty under the bonded warehouse arrangement. Back-to-Back letter of credit, in essence, is used to import the inputs generally on credit terms up to 180 days on the strength of the foreign LC received from the overseas buyers.

There are mainly two types L/C. these are-

1. Master L/C,
2. Back to back L/C.

Both of those are described in the below:

1. Master L/C:

When a L/C is opened to import goods directly from the exporter is called master L/C. This L/C is issued by the buyer (Buyer’s bank) to manufacturer. Master LC has higher financial value than back to back L/C.

2. Back to Back L/C:

When a L/C is prepared by the manufacturer to collect raw materials for production from the suppliers is called Back to Back L/C. Back to Back L/C has 70-80% financial value of master LCs.

Difference between Master L/C and Back to Back L/C:

Accessories:

Accessories are those materials which are not attached with the apparel. It can be explained in other way, accessories are those materials which are not used during manufacturing the garments, only used for finishing and packing the garments.

List of Trimmings Required for Making Shirt:

1. Sewing thread,
2. Button,
3. Lining,
4. Interlining,
5. Motif,
6. Label i.e. main label, care label, size label, price label and composition label.

List of Trimmings Required for Making Trouser or Pant:

1. Sewing thread,
2. Lining,
3. Button,
4. Zipper,
5. Label i.e. main label, care label, size label, price label and composition label.

List of Trimmings Required for Making Jacket:

1. Button,
2. Sewing thread,
3. Lining,
4. Motif,
5. Zipper,
6. Label i.e. main label, care label, size label, price label and composition label.

List of Accessories Required for Making Shirt, Pant and Jacket:

1. Neck board,
2. Back board,
3. Plastic collar insert,
4. Hang tag,
5. Ball head pin,
6. Tissue paper,
7. Poly bag,
8. Silica gee bag,
9. Carton,
10. Carton sticker,
11. Safety sticker,
12. String,
13. Hanger,
14. Butterfly,
15. Collar stay,
16. Price ticket,
17. Gum tape,
18. Bruss pin,
19. Tag pin,
20. Safety pin,
21. Buckle,
22. Size strip,
23. Pocket flasher,
24. Both side tape,
25. Plastic clip.

Salient points of Bangladesh Bank instructions in respect of opening of Back to Back L/C.

A.

i) The party requesting for such facility has to be recognized by the Textile Division as and export oriented Ready-made Garment/Specialized Textile Industry and they must have a valid Bonded Warehouse License.

ii) While opening import L/C for a new customer the branches must satisfy themselves that there is no outstanding liability of the said Ready-made Garment Industry with any other bank. Request for opening of L/C should not be entertained unless the clients produce “No liability clearance certificate(s)” from other banks with whom they had been doing their banking transactions.

iii) A Back to Back L/C is opened against an irrevocable export L/C opened by Buyer’s bank having reasonable period of validity to cover shipment of merchandise after completion of the manufacturing process. The export L/C must be checked and particulars are noted in the register with the L/C opening branch and duly marked lien on the L/C.

iv) Import L/C will be opened on usance basis covering usance of not more than 180 days.

v) Import L/Cs are allowed to be opened to the extent allowed by the existing import policy. Details of Back-to-Back L/C should be noted on the back of Export L/C.

vi) Back to Back L/C may also be opened at sight basis under EDF (Export Development Fund) arrangement.

vi) The payment is normally to be made from the proceeds of export bill after realization. The validity of import L/C should not be extended without corresponding acceptable extension of the validity of export L/C.

vii) Additional amount for the usance period of import bill shall not exceed LIBOR.

B. The following additional instructions should also be followed meticulously:

i) An undertaking should be obtained from the importer to the effect that in case of non-export within the usance time of the import bill, the payment of import bill would be affected by purchasing foreign currency from the market for which counter-part Taka amount will be placed by the importer from his/their own sources.

ii) No remittance under the L/C will be allowed at any stage from the counter’s cash foreign exchange resources other than from the export proceeds. In case export proceeds already realized do not cover import bill amount and additional amount if any, payable or the import bill falls due before realization of export proceeds, remittance will be considered by Bangladesh Bank against funds from cash.

iii) Work/Export order is within the working capacity of the factory and the time available in the export L/C is sufficient for execution of the export order after importing the raw materials from abroad, that the period of work and shipment against subsequent contract/order does not coincide with the work already in hand. Big order for a small industry is highly risky. Available time for execution of the export order may be calculated from the last date of shipment of importable raw materials to the exportable finished product.

iv) Shipment schedule for import of fabrics and accessories should be regulated to ensure receipt of both the items at a time in order to avoid dislocation of production resulting in late shipment/non-shipment.

C. Failure to observe the aforesaid formalities may lead to, among others, the following adverse consequences:

i) Failure to execute the export order will cause failure in making payment against Back to Back L/C, which will damage the prestige of the opening Bank of import L/C and this may lead to non-acceptance of our L/Cs without adding confirmation from other Bank.

ii) Failure of payment of Back-to-Back L/C liability will also accrue overdue interest.

iii) In absence of proper supervision from financing branch, the party may manage to sell the fabrics and other raw materials into the local market and the bank, therefore, may face lot of problems, as the liabilities of the party are not usually covered by realizable securities because of the prevailing credit norms.

iv) Works beyond normal working capacity of the factory may lead to late shipment or failure in shipment. This may also result in the manufacturing of goods from other garment industries under sub-contract arrangement for which quality may not be as per specification, which may cause problem in repatriation of export proceeds. Under such circumstances, foreign buyer may claim discount which has to be settled with prior permission from Bangladesh Bank after creating Bai Muazzel (Export) liability in the name of the exporter.

21 Steps of Export

Procedure of Export from Exporter side:

1) To open an account with a Bank.

2) To be collect ERC (Export Registration Certificate) from CCI & E.

3) To collect TIN from Bangladesh Revenue Board.

To collect Export L/C / Transferable Export L/C.

To submit the Export L/C / Transferable Export L/C to the Bank through his letter pad and type Back to Back L/C.

To sign LCAF

To collect Insurance cover Note with money receipt and Vat paid certificate (only for Foreign B/B L/C)

To Sign IMP & Related charge documents.

Model of Party’s Letter for submission of Export L/C: MASS Fashion Ltd.

Manager

ABC Bank Ltd.

Gulshan Branch

Dhaka

Subject : Submission of Export L/C No. …………….…….. dt. ……..………… for US$. ………………….

Dear Sir,

Assalamu Alaikum Wa Rahmatullah.

Enclosed please find here with the original Export L/C No. ……………….. dt. …………. for US$. ……….for your necessary action and oblige.

Ma-assalam

Yours truly,

Managing Director

Mass Fashion Ltd.

7,Gulshan Avenue,

Dhaka

Enclosed: Export L/C. …………………….. dt. ………………..

Procedure of Export from Banker Side:

Step: 1 : At first Banker open an Account by receiving related paper as per Banking Rule.

Step: 2 : To receive the Letter / Application of submission Export L/C, Bankers at first verify the signature (Model of Application of the Client).

Step: 3 : If the Export L/C is transferable Export L/C, it is must to verify through the letter of “Confirmation of transfer ………………. Export L/C …………….. dt …………….. for US$. ………………

(Model of Confirmation Letter / Bank transfer)

Step: 4 : [ To confirm the Export L/C (for transferable Export L/C)/Direct received Export L/C]. After receiving Export L/C from the client, to check the following:

• Transferable Export L/C’s Bank’s Authorised signature verify or not.

• Form of Documentary Credit Irrevocable transferable or not.

• Date of issue:

• Date and place of Expiry: …………………… in Bangladesh.

• Applicant:

• Beneficiary:

• Currency Amount:

• Draft: At sight

• Transhipment: allowed / Not allowed.

• Last date of Shipment:

• Terms of Delivery: FOB Dhaka / FOB Ctg.

Step: 5 : If the terms and condition of Bank Export L/C is ok to mark – LIEN WITH BANK.

UNDER LIENWITH

Social Islami Bank Ltd

Panthapath Branch

Dhaka

Step: 6 : (LIEN MARKED) Export L/C Serial No. write of the file by red ink Ball point . i.e. To open a

seperate Export L/C File.

Step: 7 : Advice the Export L/C to Applicant / Exporter.

Step: 8 : To Entry the Export Performance Registrar:

Column of Export Performance Registrar.

• SL.NO.2. Export L/C No & date 3 . Shipment date, 4. Expiry date, 5.Description and Quantity of goods, 6. Category (Quota/not Quota) 7. Amount in F.C. 8. Initial

Particulars of BB LC

9. B B L/C and Date 10. Shipment Date , 11. Expiry Date 12. Amount in F.C. (BB Bills) 13.Initial 14. Import Bill No.& date 15. Amount in F.C. 16.Due date 17. Paid on 18. Initial

Particulars of Export Bills

19. Negotiating date 20. Export Bill No. (FBP/FBC) 21. Amount in F.C. 22. Amount in Local Tk. 23. Date of realization 24. Realization amount in F.C. 25. Initial 26. Remarks

Step: 9 : To open required B/B L/C, Local B/B L/C Under/ agt. the Export L/C (if discretionary power is available to open the above B/B L/C)

To open Back to Back Foreign L/C, the following documents signed by Exporter:

• IMP form

• LCA Form (Industrial)

• LC Application form (Industrial)

Charge documents:

• Promissory Note

• Letter Authority

• Note Deliver Letter

• Balance Confirmation

• LIM/Mura – Agreement Import (150 Tk. Stamped)

• Purchase schedule

• Letter of Guarantee

• Letter of Hypothecation

• Letter of Continuity

• Insurance Cover Note with money receipt & VAT Certificate.

Step: 10 : If Branch Manager’s discretionary Power is not available to open the B/B L/C (Foreign), B/B L/C Local, Proposal send to Head Office ID.

(Model of proposal to open B/B L/C) { Please See Appendix page- }

It may open 75% amount of the Export L/C value.

Step: 11 : To open B/B L/C (Foreign / Local) to pass the following voucher:

(a) Dr. Customers Liability on B/B L/C.

Cr. Bankers Liability on B/B L/C.

(To entry the liability voucher to B/B L/C Liability Register)

(b) Dr. Party Account.

Cr. L/C Opening Commission Foreign.

Cr. Telex Charge / Swift Charges.

Cr. Handling Charge (if required)

Cr. Direct Exp. Account.

Cr. Stationery Charges.

Cr. S/D. on Vat in L/C Commission.

Step: 12 : To receive the original documents of B/B L/C, to entry the L/C documents (B/B) receiving Registrar and to issue an intimation letter to the client to retire the documents.

Step:13 : The Exporter receiving the intimation letter, to submit a prayer to endorse the documents to the Bank.

Step: 14 : To receive the prayer of endorsement the shipping documents with stamped / sealed .

Step: 15: If the documents is discrepant to inform the Supplier’s Bank the above discrepant through Swift/By Post/By Courier. Beside this to inform the following above discrepancy to Exporter.

Step: 16 : If the discrepant documents accepted by the Exporter (our Importer of B/B L/C), the applicant (our Exporter) submit a prayer for acceptance of the documents.

(Model of Acceptance Letter) { Please See Appendix }

(As like as the all formalities are for B/B L/C Local)

Step: 17 : To issue a acceptance maturity date to the supplier of the B/B L/C.

To pass the following voucher:

Dr. Banker’s Liability B/B L/C.

Cr. Customer Liability B/B L/C.

Dr. Customers Liability B/B Bills

Cr. Banker Liability B/B Bills.

Dr. Party Account

Cr. Acceptance Commission of B/B L/C (0.50%)

Cr. CICC (0.20%)

Cr. Other Charges (Stationery) – If any.

Step: 18 : If the all Fabrics, accessories are received by the Exporter (for RMG). Party request to Bank to issue an Exp. Form to export the goods. Banker issues an Exp. Form to the Exporter to give the serial No. from the Exp. Issuing Register are as follows:

• Date of issue.

• EXP Serial No.

• Name & Address of the Exporter

• Commodities

• Amount declared in Exp.

• Date of certificate

• Initial of the Banker (certificate issuing official)

• Date of shipment

• Bill No. (FBP/FBC)

• Date of Negotiation or sending document abroad for collection of the Export Proceeds.

• Date of submission on of duplicate copy of Exp. Form to Bangladesh Bank.

• Date realisation

• Amount realised in F. Currency.

• Taka amount paid to the Exporter & rate of exchange applied.

• Date of submission of triplicate copy to Bangladesh Bank.

• Remarks (If any).

Step: 19 : To Export the goods, the Exporter submit a prayer to negotiate the documents.

(Model of Application / Prayer by Exporter) { Please See Appendix page }

(FOR FBC)

Date:

Manager

ABC Bank Ltd.

Dhaka

Sub: Export documents of US$. ………….. agt. Export L/C No.

Dear sir,

Please find enclosed a set of Export documents of Pcs/Set ………….. Polo/Shirt/ against the above L/C for US$. and requested your good -self to send the documents on collection basis for collection of remittance.

Thanks & regards.

Yours truely,

(Sign. & Seal of the Client)

Enclosed: 1) Draft – 02 copy

• Invoice –

• P/L –

• B/L –

• GSP –

• Export License

• BNF Certificate

• Packing Control Certificate

• Inspection Certificate (if required)

• AZO – Free certificate (if required)

• Form (dully signed by customs Authority)

• Certificate of Original

• Phytosanitary /Health certificate etc.

Step: 20 : To issue a FBC No. on the top of the Application of FBC and all Pages of FBC documents (Minimum Two set documents) and make a New file of FBC.

The column FBC/FBP Register:

• Date

• FBC No.

• Under Export L/C

• On whose Account (Our Clients)

• Particulars

• Place drown on

• Amount:

Foreign Currency

Rate

Taka

Particulars of documents

• Date

• BL/TR

• Invoice No.

• Insurance Policy No.

• Usance of Bills: at sight

• Particulars of goods:

• Name of steamer Carring goods: (Truck/Vessel name)

• date of arrival to destination

• Special Instruction

• Date of documents ask by Correspondence.

• Remarks/Recovering.

• Date of realised.

• Remarks/Exp No.

To send the FBC documents to Exp. L/C issuing Bank with Bank’s forwarding

[Model of Bank forwarding] { Please See Appendix page- }

Voucher to passed:

Dr. Foreign Bill for Lodged (FBL)

Cr. Foreign Bill for Collection (FBC)

Step: 21 : On receipt of Credit advice of the Export Bill form the foreign correspondent Bank, Bank realised the bill on collection at specified rate and rest amount will be paid to Party (Exporter) Account after divestment of all liability (if any).

Voucher to be passed:

Dr. FBC Account [Reversal of contra voucher]

Cr. FBL

Dr. Head Office [Foreign Bank as per Credit advice/Export proceeds]

Cr. Party’s Account after adjustment of liability (if any)

Cr. Income Account Commission/Charges

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