Reciprocal L/C

Reciprocal L/C refers to a arrangement in which two parties to a transaction issue letters of credit to each other. It is typically used in reciprocal transactions such as barter trade, compensation trade, or processing with supplied materials. Its characteristic is that the beneficiary and applicant of the first L/C are respectively the applicant and beneficiary of the second L/C, and the two L/Cs may take effect simultaneously or separately. Use cases include: one party imports equipment or raw materials while committing to repay with products; or both parties purchase each other's products. Points to note: the amounts, goods descriptions, and shipment dates of the two L/Cs must be coordinated with each other; if simultaneous effectiveness is stipulated, a breach by one party may cause the other L/C to become invalid; banks face relatively high risks and usually require the counterparty to provide security. Difference from back-to-back L/C: a back-to-back L/C is a sub-L/C issued by an intermediary based on a master L/C, whereas a reciprocal L/C is issued mutually by both parties, with no master-subordinate relationship. Difference from transferable L/C: a transferable L/C is transferred only once, and the beneficiary does not necessarily issue an L/C back.