Back-to-back Letters of Credit are used when an intermediary needs to buy goods from a supplier and sell them to an end buyer, but cannot fund the supplier without a bank-grade payment undertaking. The structure uses an incoming LC (from the end buyer) as the foundation to issue a second LC (to the supplier), with controlled terms that protect the intermediary’s margin and execution timeline.
This structure only works when the paperwork is clean. The two credits must be engineered so the supplier can present compliant documents while the intermediary can still present to the buyer without creating mismatches, timing gaps, or document traps.
The most common failure point is drafting two credits that look similar on paper but do not reconcile in practice. Even small discrepancies in document wording, dates, or presentation windows can kill the transaction.
The supplier must present under the second LC early enough for the intermediary to re-present under the first LC without expiry pressure. This requires disciplined buffers, not aggressive timelines.
| Step | What Happens |
|---|---|
| 1) Buyer issues incoming LC | End buyer issues a documentary LC in favor of the intermediary (or a nominated entity) under UCP 600, subject to bank policy. |
| 2) Bank underwrites back-to-back issuance | The intermediary’s bank evaluates the incoming LC, the intermediary’s profile, margin/collateral, and risk controls before issuing the outgoing LC. |
| 3) Outgoing LC issued to supplier | The intermediary’s bank issues a second LC in favor of the supplier, engineered to produce documents that can be re-presented upstream. |
| 4) Supplier ships and presents | Supplier presents documents under the outgoing LC. If compliant, payment is made under that LC according to its terms. |
| 5) Intermediary re-presents upstream | Intermediary presents under the incoming LC to collect from the buyer, capturing the margin after costs and fees. |
No. A transferable LC allows the beneficiary to transfer certain rights to a second beneficiary under the same credit, subject to the issuing bank’s terms. Back-to-back involves two separate credits. It is often used when transferability is not permitted or not commercially workable.
Document mismatch, unrealistic timelines, inspection language that cannot be satisfied, and lack of margin or collateral support required by the issuing bank. Most failures are drafting and control failures rather than market failures.
Often, yes. The issuing bank will evaluate the incoming LC and may still require margin, collateral, or credit support depending on risk appetite and policy. This is confirmed during underwriting.
No. Financely is an advisory firm. Issuance is subject to bank policy, underwriting, KYC and AML, sanctions screening, and executed documentation.
If you have an active buy and sell transaction and need a back-to-back documentary LC structure, submit your deal pack with the draft contracts, Incoterms, shipment windows, counterparties, and requested amounts. We will revert with structure options and an underwriting checklist.
Request A QuoteDisclaimer: This page is for general information only. It does not constitute legal, tax, regulatory, investment, or credit advice and it is not an offer or commitment by Financely or any third party to provide any financing or Letters of Credit. Financely is not a bank, lender, insurer, surety, broker-dealer, or investment adviser. Any LC issuance is provided solely by regulated counterparties under their own licenses, approvals, policies, and documentation. All transactions are subject to eligibility, KYC and AML review, sanctions screening, credit approval, and execution of definitive agreements.
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