Back to Back Letters of Credit

Funding against an incoming letter of credit can be trickier than it ought to be in today’s banking environment.    A documentary letter of credit (DLC) can only be cashed upon presentation of the required shipping documents and inspection reports (if needed).  Before goods are shipped, the DLC has potential value, but it isn’t fundable or cashable YET.  Your supplier may want to be paid in order to produce and ship, but you won’t be able to convert that DLC into cash until your supplier ships the product.  If you have received a non-transferable letter of credit in payment, you are going to need a bridging mechanism to pay your supplier to get your deal all the way home.

The back to back letter of credit is your financial bridge mechanism, enabling you to finance your order against the incoming LC.  An LC is issued to your supplier, with payment terms that mirror the terms in the incoming LC, same shipping documents, same inspection or other requirements