How to Get a Third Party to Issue a Documentary Letter of Credit and Use Back-to-Back LCs

Important. For commodity traders, importers and exporters seeking structured letters of credit. Not investment advice. Prepared September 2025.

How to Get a Third Party to Issue a Documentary Letter of Credit and Use Back-to-Back LCs

1. What a Third-Party DLC Is

A Documentary Letter of Credit (DLC) is a payment commitment issued by a bank on behalf of a buyer, guaranteeing payment to a seller once shipping documents comply with agreed terms. When your own bank cannot issue or confirm the DLC—due to credit limits, jurisdiction or collateral constraints—you can have a third-party bank issue it instead, with you as applicant and your counterparty as beneficiary.

2. Why Traders and Manufacturers Use Third-Party DLCs

  • Credit limits: Your regular bank may be at exposure limits for your sector or country.
  • Speed: Specialized issuing banks or trade-finance funds can act faster than relationship banks.
  • Geography: The beneficiary might require an LC from a specific first-tier jurisdiction.
  • Collateral relief: Third-party arrangers can accept alternative collateral or structured guarantees instead of full cash margin.

3. How to Arrange Third-Party DLC Issuance

  1. Prepare a full trade file: contracts, pro forma invoice, Incoterms, and shipping schedule.
  2. Mandate an arranger: FG Capital Advisors or similar private credit arrangers invite partner banks to issue and confirm the DLC.
  3. Provide collateral or guarantee: options include SBLC, APG, receivables assignment, or borrowing-base collateral instead of a 100 % cash deposit.
  4. Final review and issuance: once conditions are cleared, the third-party bank issues the DLC directly to the seller’s advising bank.

Well-prepared applications can close in two to five weeks depending on KYC and jurisdiction.

4. Back-to-Back Letters of Credit Explained

A back-to-back LC is a second letter of credit issued on the strength of a first LC. Common use case: an intermediary trader receives a DLC from the end buyer and uses it as collateral for another DLC in favor of the original supplier.

Advantages

Allows middle traders to finance purchases without tying up their own balance sheet. Payment security flows from the first LC to the second.

Key Controls

The second LC mirrors shipping and payment terms of the first LC. Banks typically require strict back-to-back language to avoid mismatches.

5. Documents and Conditions Banks Expect

  • Signed sales contracts and purchase orders covering both legs of the trade.
  • Evidence of first LC issuance (for back-to-back structures).
  • KYC, AML, and sanctions clearance for all parties.
  • Insurance and inspection arrangements if commodities are involved.

Accuracy and matching of terms between LCs are critical to prevent payment delays or disputes.

6. Alternatives if You Lack Collateral

Standby LC or APG Support

A standby letter of credit or advance payment guarantee can secure the DLC instead of full cash cover.

Borrowing Base Facilities

Use eligible inventory or receivables as collateral for the DLC margin requirement.

Receivables Securitization

Package and monetize confirmed export receivables to free up balance sheet capacity.

Private Credit Lines

Specialized funds can provide short-term loans secured by the LC proceeds themselves.

Need a Third-Party DLC or Back-to-Back LC?

FG Capital Advisors arranges bank-issued DLCs and back-to-back letters of credit with alternative collateral structures. Start with a consultation to map your trade cycle and credit needs.

Book a Consultation Call

Disclaimer. All facilities are subject to KYC/AML, full underwriting and collateral verification. FG Capital Advisors does not guarantee funding. Third-party bank fees are separate from our fees.