A back to back letter of credit is a specialized trade finance instrument used when an intermediary facilitates a transaction between an end buyer and an end supplier without revealing the identity of either party to the other. On the flip side, the back to back letter of credit solves this challenge by creating two separate but linked letters of credit: one issued by the buyer’s bank to the intermediary, and a second issued by the intermediary’s bank to the actual supplier. In global commerce, middlemen often connect manufacturers with buyers across borders, and they need a payment mechanism that protects their commission while ensuring goods move smoothly. This structure allows the middleman to secure goods from the supplier using the buyer’s credit as collateral, without exposing the underlying supplier or customer details.
What Is a Back to Back Letter of Credit?
A back to back letter of credit consists of two distinct documentary credits that work together to complete a single trade transaction. The first letter of credit, often called the master credit or original LC, is issued by the end buyer’s bank in favor of the intermediary. The second letter of credit is issued by the intermediary’s bank in favor of the actual supplier, using the first LC as security No workaround needed..
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