Back-to-Back Letter of Credit Services
FG Capital Advisors structures and coordinates back-to-back Letters of Credit for traders that receive an LC from a buyer and require a separate documentary credit to pay an underlying supplier.
The structure can allow an intermediary to use an incoming master LC as part of the credit support for supplier-side issuance. We coordinate transaction review, LC structuring, margin requirements and bank placement.
When Back-to-Back LCs Are Used
Commodity Traders
A trader has secured an LC from its buyer and requires a separate LC to purchase goods from the source supplier.
Importers and Distributors
A distributor has a confirmed customer order while its overseas supplier requires bank-backed payment.
Trade Intermediaries
An intermediary controls the commercial transaction and needs to coordinate payment across separate purchase and sale contracts.
Supplier Payment
The supplier requires documentary bank payment before manufacturing, loading or releasing goods.
Trade Confidentiality
Separate credits can help preserve the intermediary's commercial relationships across the supply chain.
Working Capital Constraints
The trader can seek a structure that reduces the amount of cash required to open the supplier-side LC.
Back-to-Back LC Solutions
Select a service to review the areas FG Capital Advisors can coordinate.
Service 01
Back-to-Back LC Structuring
We review the master LC and supplier contract before developing the proposed supplier-side documentary credit.
- Master LC review
- Supplier LC terms
- Document alignment
How a Back-to-Back LC Works
Companies can also review our back-to-back LC issuance services and broader letter of credit placement support.
What Banks Review
| Review Area | Key Considerations |
|---|---|
| Master LC | Issuing bank, amount, tenor, expiry and documentary conditions. |
| Purchase Contract | Supplier obligations, pricing and shipment terms. |
| Sale Contract | Buyer terms, transaction margin and settlement mechanics. |
| Document Compatibility | Documents under the supplier LC must support presentation under the master LC. |
| Trader Credit | Experience, financial capacity and transaction execution history. |
| Margin Requirement | The bank determines any additional cash or collateral required. |
Where additional collateral is required, FG Capital Advisors can also structure LC margin support.
Back-to-Back LC vs Transferable LC
A transferable LC allows the first beneficiary to transfer rights under the existing credit where the LC expressly permits transfer.
A back-to-back structure creates a second independent documentary credit for the supplier. This can provide more flexibility where the purchase contract and sale contract contain different commercial terms.
The correct structure depends on the master LC and the transaction. See our detailed comparison of transferable LCs and back-to-back LCs.
Our Process
1. Transaction Review
We review the buyer LC, supplier contract and sale contract.
2. Structure
We map the two documentary credits and identify required adjustments.
3. Margin Analysis
We assess the likely collateral requirement and available credit support.
4. Bank Placement
We present suitable mandates to relevant issuing institutions.
5. Document Coordination
We coordinate the proposed LC terms and transaction documentation.
6. Issuance Support
We support the process through approval and issuance coordination.
Frequently Asked Questions
What is a back-to-back Letter of Credit?
A back-to-back structure uses two separate documentary credits. The trader receives the master LC and arranges a second LC for the underlying supplier.
Who uses back-to-back LCs?
Commodity traders, importers, distributors and other intermediaries commonly use the structure when they sit between a buyer and supplier.
Can the master LC support the second LC?
Potentially. The bank will review the master LC and the trader's credit profile before determining its collateral requirements.
Does the trader need cash margin?
The requirement depends on the bank, master LC and transaction risk. Additional collateral or margin may be required.
Can the two LCs have different values?
Yes. The supplier-side LC will commonly reflect the trader's purchase price while the master LC reflects the resale price.
Can FG Capital Advisors arrange the issuing bank?
Eligible mandates can be presented to banks and trade finance providers that consider back-to-back documentary credit structures.
Submit a Back-to-Back LC Transaction
Provide the master LC, purchase contract, sale contract and required supplier-side LC amount for an initial assessment.
Open Client IntakeLegal Notice. FG Capital Advisors provides transaction structuring and placement services. Letter of Credit issuance remains subject to independent bank underwriting, compliance review and documentation. Margin requirements depend on the applicant and transaction. No bank approval or issuance outcome is guaranteed.
