Back-to-Back Letter of Credit: Structure and Risks
How a back-to-back Letter of Credit structure works for traders, and the risks compared with a transferable credit.
Reviewed by LCCheck team (owner-approved) · 2026-10-12
Short answer
In a back-to-back structure, a trader uses the Letter of Credit received from its buyer as support for a second, separate credit issued in favour of its supplier. The two credits are independent: the trader's bank must pay the supplier on a compliant presentation even if the trader cannot then present compliant documents under the first credit.
| Credits | Two separate credits |
|---|---|
| UCP article | None specific; each credit stands alone |
| Key risk | Mismatch between the two credits' terms |
How it works
- Trader receives master credit from buyer.
- Trader's bank issues second credit to supplier, secured by the master credit.
- Supplier ships and presents under the second credit.
- Trader substitutes documents and presents under the master credit.
Risks
- Dates and documents in the two credits not aligned.
- Master credit refused while second credit is paid.
- Bank may require extra security.
Sources
General guidance, not legal advice. Your bank examines documents independently.
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