A back-to-back letter of credit is useful in the case wherethe beneficiary of the letter does not provide the goods himself using a third party supplyer and these subcontractors ask to be secured by a documentary credit too.
A back-to-back letter of credit is used in a trade transaction involving an intermediary between the buyer and seller, it is a documentary credit option that will allow intermediaries without credit themselves to carry out import-export operations.
Back-to back LC main advantage is for the intermediary as it is able not to disclose the source of the exported goods, the terms and conditions of the contracts towards the buyer and as well towards the subcontractors as they may be different and the ultimate will never know the destination of the goods.
It is crucial that back-to-back letters of credit mirror each other in other words they have the same shipping, inspection, and terms. The reason for the importance of an LC being mirrored is that the first letter of credit becomes the security for the second letter of credit
TRADEFINANCE.AFRICA COUNTRIES OF EXPERTISE