Back‑to‑Back Letters of Credit: Full‑Service Structuring & Placement

Need a Back‑to‑Back LC Without Blowing Timelines or Margin?

Intermediaries, traders, EPC contractors, and sourcing firms use back‑to‑back letters of credit to bridge buyers and suppliers while keeping pricing and counterparties ring‑fenced. The concept is simple—use the inbound LC as collateral to issue an outbound LC. The execution is rarely simple. Two banks, two sets of documents, two clocks. One discrepancy upstream and the whole chain stalls.

We build and run these structures end‑to‑end: terms, wording, bank selection, fee grids, SWIFT traffic, and document control. If a different instrument beats a back‑to‑back LC on cost or speed, we say so and pivot. When a back‑to‑back is the right call, we make sure it clears cleanly.

What We Deliver

• Structure design: Master LC terms mirrored to the supplier LC with buffers on dates, amounts, and presentation periods.
• Document drafting: UCP 600‑compliant text, reimbursement clauses, clear fee allocation, and discrepancy procedures.
• Bank origination: We secure issuing and advising/confirming banks that actually want this risk, not ones that will sit on files.
• Fee and limit negotiation: Confirmation, advising, transfer, amendment, and discount margins—priced before you commit.
• Execution control: SWIFT monitoring, discrepancy management, CP tracking, and escalation if a bank’s ops desk slows down.
• Alternatives on tap: Transferable LCs, assignment of proceeds, UPAS, SBLC/URDG guarantees, receivables finance—ready if the back‑to‑back path jams.

How a Back‑to‑Back LC Actually Works (and Where It Breaks)

Flow in brief:

1. Your buyer’s bank issues the master LC in your favour.
2. Your bank uses that LC as collateral to issue a second LC to your supplier.
3. The supplier presents documents under the secondary LC; your bank pays if compliant.
4. You present adjusted documents under the master LC; the buyer’s bank reimburses.

Break points: mismatched shipment windows, presentation periods shorter on the secondary LC, tolerance on quantity/price not mirrored, or the master LC amended mid‑cycle. We map these traps early and pad the timetable.

Back‑to‑Back vs Alternatives (Why Pick One Over the Other?)

Need	Back‑to‑Back LC	Transferable LC	Assignment of Proceeds	SBLC / URDG Guarantee	UPAS / Discounting
Keep buyer identity confidential	✔	✖ (buyer often visible)	✔ (if assignment is silent)	✔	✔ (depends on structure)
Match complex doc sets	✔ (if mirrored correctly)	Limited flexibility	Relies on your presentation	Not documentary	One LC, easier docs
Minimise bank fees	Often high (two LCs)	Lower	Low	Moderate	Moderate (discount margin)
Fastest to execute	Not usually	Often faster	Fast	Fast	Fast once LC is live
Bank appetite	Mixed—some push back	Widely accepted	Common	Common	Common

Our Process

1. Scope & Mandate

We agree ticket size, jurisdictions, bank set, and timelines. You get a checklist and a single point of contact.

2. Term Sheet & Drafting

We map the master and secondary LC terms line by line, build in buffers, and lock wording that ops teams can process without debate.

3. Bank Engagement

We approach banks that fit your country limits, sector appetite, and LC tenor. No “spray and pray”—we value their time, you get speed.

4. Issuance & Advising

SWIFT MT700/710 issued, authenticity checked, confirmation added if needed. All parties know who pays which fee and when.

5. Document Control

We coordinate forwarders, inspectors, and your internal team to make sure the first presentation lands clean. Discrepancies are fixed fast.

6. Settlement & Reimbursement

Funds move per the reimbursement clauses. We track every leg until cash lands where it should.

Information We Need to Start

• Draft sales contract and purchase contract (key commercial terms)
• Incoterms, shipment windows, and logistics plan
• Commodity/HS codes, inspection or certification requirements
• Desired LC tenor, currency, and drawdown schedule
• Jurisdictions of buyer, supplier, and your SPV/operating company
• Bank relationships in place (if any) and exposure headroom

Risk Controls We Build In

• Date and amount buffers so the secondary LC doesn’t expire before the master LC pays
• Clear reimbursement mechanics (MT742/747) to avoid post‑payment disputes
• Discrepancy cure paths laid out in advance with both banks
• Sanctions and AML screening on all counterparties and goods before issuance
• Fallback funding: discounting or bridge lines if the master LC is delayed

Fees & Economics

Pricing depends on country risk, issuing bank strength, tenor, confirmation needs, and amendment probability. We quote after scoping—transparent, line‑itemed, no surprises. If a different structure saves you money, we’ll push for it.

FAQ

Can we keep the supplier from seeing the master LC? Yes. A back‑to‑back LC or assignment of proceeds can ring‑fence terms. We’ll pick the right route after looking at your documents.

Will banks in India issue the secondary LC? Many do, but they review FEMA/RBI implications if a foreign guarantee or SBLC is involved. We manage that process.

What if the buyer’s bank refuses amendments? We bake flexibility into the first draft. If not possible, we design fast amendment paths or use silent confirmation/UPAS to hedge timing risk.

Can we finance against the master LC instead? Often yes—discounting or receivables assignment can replace the second LC entirely. We’ll run the math.

Statement of Role

We act as arranger and advisor. We are not a bank and we do not issue LCs. All mandates are best‑efforts, subject to diligence, KYC, and bank appetite.