Back-to-Back Letter of Credit

A Back-to-Back Letter of Credit involves two separate Letters of Credit (L/Cs) used in a single transaction. This arrangement typically includes an intermediary.

The first L/C is issued by the buyer’s bank in favor of the intermediary. The second L/C is issued by the intermediary’s bank in favor of the final supplier.

This structure facilitates transactions where the intermediary does not have sufficient funds or credit to purchase goods directly.

For example, in international trade, a trading company (intermediary) might use a Back-to-Back L/C to buy goods from a manufacturer and sell them to a buyer.

Key entities involved include the buyer, intermediary, supplier, and their respective banks.