Compare · Side by side
Transferable LC vs Back-to-Back LC
Two different ways intermediaries may structure trade.
| Question | Transferable LC | Back-to-Back LC |
|---|---|---|
| Core structure | Original credit is expressly transferable and can be transferred under the applicable rules. | A separate second LC is issued, often using the first transaction/credit as support in the bank’s credit decision. |
| Number of credits | One original credit plus transfer mechanics. | Two separate credits. |
| Bank obligation | Transfer follows original credit within permitted changes. | Issuing bank of second LC gives a separate undertaking. |
| Credit approval | Transfer bank must agree to act as transfer bank. | Bank must approve issuance of the second credit and related exposure. |
| Risk | Depends on original credit and transfer structure. | Mismatch risk can arise between the master and second credit. |
How to use this comparison
The labels are a starting point, not a substitute for the actual wording. Before choosing a structure, ask what creates the payment obligation, who carries the credit risk, what rules apply, what event triggers payment and whether the receiving bank or financier accepts the structure.
1. Obligation
Who actually promises or is ordered to pay?
Who actually promises or is ordered to pay?
2. Trigger
What must happen before payment is due?
What must happen before payment is due?
3. Rules & documents
What wording or documentary conditions control the result?
What wording or documentary conditions control the result?
4. Bank acceptance
Will the relevant bank accept, advise, confirm, finance or process it?
Will the relevant bank accept, advise, confirm, finance or process it?