Back-to-Back L/C

A back-to-back L/C refers to a situation where an intermediary, after receiving a transferable L/C or an ordinary L/C issued by the final buyer, uses that L/C as security to issue another L/C to its own supplier (the actual supplier). Its core feature is that the two L/Cs are independent of each other, but their terms such as amount, shipment date, and validity period are linked, and the intermediary profits from the price difference. Use cases: when it is inconvenient for the intermediary to let the final buyer and the supplier contact each other directly, or when a transferable L/C is not applicable. Precautions: (1) The intermediary must ensure that the terms of the back-to-back L/C match those of the master L/C, especially that sufficient time is allowed for the shipment date and the document presentation period; (2) The risk of soft clauses in the master L/C will be passed on to the back-to-back L/C; (3) Banks usually require the intermediary to provide security or a deposit. Difference from a transferable L/C: A transferable L/C is a transfer of the same L/C, whereas a back-to-back L/C consists of two independent L/Cs, with different issuing banks, and the intermediary bears primary payment liability.