Back-to-Back LC Explained: Two LCs, Double Obligation, Higher Risk
Many traders confuse Transferable LC with Back-to-Back LC… but they are NOT the same.
WHAT IS BACK-TO-BACK LC?
A Back-to-Back LC is when a second LC is issued based on the first LC
- Two separate LC
- Two separate bank obligations
ACTUAL FLOW (STEP BY STEP)
STEP 1 – Original LC (MT700)
Buyer → Issues LC to Trader
STEP 2 – Trader Applies for New LC
Trader applies to bank
Uses original LC as supporting document
Bank will:
- Assess trader’s creditworthiness
- Evaluate risk independently
STEP 3 – Second LC Issued (MT700)
Bank issues new LC to Supplier
Separate LC
Separate obligation
STEP 4 – Shipment
Supplier ships goods
STEP 5 – Document Submission
Supplier submits documents
Through bank
STEP 6 – Payment Flow
Bank pays Supplier
Trader earns margin
Buyer pays original LC
KEY DIFFERENCE (IMPORTANT)
Transferable LC
👉 Same LC (MT720 involved)
Back-to-Back LC
New LC (MT700 issued)
No MT720 involved
CRITICAL RISKS
Trader carries financial liability
Bank exposure higher
Requires strong credit
Additional risk:
Mismatch between two LCs
Document inconsistency
Payment delays or rejection
SWIFT INVOLVED
MT700 → Original LC
MT700 → Second LC
MT707 → Amendment
MT720 → NOT used
KEY INSIGHT
“Back-to-Back LC creates a new obligation… and introduces a second layer of risk.”
CONCLUSION
Suitable for structured trade deals
Requires strong financial backing
Needs precise document control
Need help structuring Back-to-Back LC or reviewing LC wording? Feel free to reach out.
CONTACT US FOR ASSISTANCE:
WhatsApp:
IR. Zaki
http://www.wasap.my/60192297179/OilPetroleum
(Mr. Saif)
http://www.wasap.my/60105375779/OilPetroleum
(Ms. Nur)
http://www.wasap.my/601129291396/OilPetroleum
Email:
gngroup.sb@gmail.com
sales.gngroupsb@gmail.com
Website:
https://www.gngroupsupplies.com/
https://gngroupsupplies.blogspot.com/