Lesson 22 of 39 · Part G · Level 2 · Explained
Paying back-to-back LCs and the input stock
How back-to-back usance bills are paid at maturity from export money set aside in a separate account, why they are paid even when the export fails, the post facto approval and reports that follow, and the bank's watch on bonded stock.
In Lesson 21, Inland back-to-back and Taka LCs, Evelyn learned to pay makers like Arman in dollars and traders in Taka. Her yarn came from Arman's mill, her fabric came from abroad, and her T-shirts for Hamburg are now coming off the lines.
Then the calendar taps her on the shoulder. Her first back-to-back bill for imported fabric falls due next month. "I will pay it when Hamburg pays me," she tells Habib. "That's how back-to-back works, isn't it? One LC pays the other."
"Mostly," says Habib. "But what if Hamburg pays late, or pays less, or the order is cancelled?" Evelyn goes quiet. Arman, who has dropped in to collect his own papers, goes even quieter. His cotton came in on a back-to-back LC too.
Habib has invited Mithu, a chartered accountant and former CFO of a large export group, to talk to his exporters about cash flow. Mithu has seen many factories that were rich on paper and empty in the bank. "A back-to-back LC is two promises tied together," Mithu says. "The bank must keep its promise even if the other one breaks. So let's see where the money sits, and what happens when things go wrong."
This lesson covers the last two paragraphs of Part G: paying back-to-back LCs (G-5) and the bank's watch on the stock of inputs (G-6).
Payment against back to back LCs
In plain words
G-5 answers three questions: where the money comes from, what the bank checks before paying, and what happens when the export goes wrong.
1. Where the money comes from
The usance bill under a back-to-back LC is paid at maturity, out of the proceeds of the related export, repatriated in foreign exchange. The foreign exchange needed is set aside from the export proceeds, including payments received in advance, in a separate foreign currency account in the AD's subsidiary ledger. Think of it as a labelled tiffin box: this money is for the fabric bill, not for lunch.
2. What the bank checks before paying
Before remitting against the back-to-back import bill, the AD should see that the authenticated copy of the bill of entry for bond has been submitted. It is the proof that the imports actually arrived.
3. When the export goes wrong
The usance bill must still be settled at maturity even where:
- the export has not taken place;
- the export proceeds have not been realised; or
- the realised proceeds, net of the value addition requirement, are not enough to cover the back-to-back payment.
The foreign supplier is not left waiting. Then the paperwork follows:
- The AD seeks post facto approval from Bangladesh Bank (FEOD, Head Office or other offices of Bangladesh Bank) within fifteen days of the following month of making the payment. Read simply, if the bank pays in March, it applies within the first fifteen days of April.
- The application must fully explain the export failure or the non-realisation or short realisation, with supporting documents.
- Where the export failed, the AD also reports it to the NBR and the concerned Commissioner of Customs, so they can closely watch the stock of those goods in the bonded warehouse.
- A copy of the letter to the NBR goes to Bangladesh Bank with the post facto application.
- Every post facto application in these cases (export failure, short or non-realisation) carries the authenticated copy of the bill of entry showing the back-to-back imports were actually received.
At the desk
Evelyn's Hamburg buyer cancels part of the order after the fabric has arrived. Her back-to-back bill matures on 20 March, and Habib's bank pays the supplier on time. By 15 April, Habib sends Bangladesh Bank a post facto application explaining the export failure, with the supporting documents, the authenticated bill of entry and a copy of the bank's letter reporting the failure to the NBR. "Pay first, explain fully, and keep the paper trail tidy," Mithu tells Evelyn.
Key words
- Maturity date
- The day an accepted bill of exchange must be paid.
- Subsidiary ledger
- A detailed side record in a bank's books for one type of account. Under G-5, the separate foreign currency account for back-to-back payments is kept here.
- Bill of entry for bond
- The Bill of Entry for goods entering a bonded warehouse. Under G-5, its authenticated copy is the proof that the back-to-back imports actually arrived.
- Post-facto
- Done afterwards, after the event.
Read the rule as written (Para G-5)
Payment in settlement of usance bill against the back to back LCs shall be made at maturity, out of proceeds of the relative export repatriated in foreign exchange; the required foreign exchange will be set aside, out of the export proceeds including payments realized in advance, in a separate foreign currency account in the subsidiary ledger of ADs. Before making remittance against the back to back import bill, ADs should see that the authenticated copy of bill of entry for bond in evidence of actual arrival of the relative imports has been submitted. Usance bills against back to back LCs should be settled at maturity even where for some reason export has not taken place, or where the export proceeds have not been realized or where the realized export proceeds net of value addition requirement is not adequate to cover the back to back import payment. In such cases post facto approval of Bangladesh Bank (FEOD, Head office or other offices of Bangladesh Bank) will have to be sought for within fifteen days of the following month of effecting the payment, explaining fully the circumstances of export failure or non-realization/short realization of export proceeds, with relevant supporting documents. Cases of failure of export against the relative master LCs should also be reported to the NBR and the concerned Commissioner of Customs so that they may monitor closely the level of stock of the relative goods in the bonded warehouse. A copy of the letter to NBR reporting the export failure should be submitted to Bangladesh Bank along with the application for post facto approval of remittance towards back-to-back import payment. Also, all applications for post facto approval of such remittance in the event of export failure and short realization/non-realization of export proceeds should be accompanied by the authenticated copy of the relative bill of entry evidencing actual receipt of the back to back imports.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part G, paragraph 5 (page 25). The original circular is the authority.
Putting it together
So far: back-to-back usance bills are paid at maturity from the related export proceeds, set aside in a separate foreign currency account, and only after the authenticated bill of entry for bond shows the imports arrived. If the export fails or the money falls short, the bill is still paid on time; the AD then seeks Bangladesh Bank's post facto approval within fifteen days of the following month, reports export failures to the NBR and the Commissioner of Customs, and sends the supporting papers. Throughout, the AD watches the bonded stock and reports any sign of illegal disposal at once.
Next: Part G of the import room is complete. Part H, on alternative trade finance mechanisms for imports, starts in Lesson 23, Beyond the LC: other ways to pay for imports.