Transferable, Back-to-Back, and Tiered Credits

Transferable, back-to-back, and tiered credits are letter-of-credit structures used when an intermediary, reseller, or supplier chain sits between the original buyer and the final supplier. This branch covers transferable letters of credit, back-to-back letters of credit, primary letters of credit, and secondary letters of credit.

Use these pages when one trade credit is intended to support another payment obligation, or when the beneficiary needs part of the credit made available to a second beneficiary.

What This Branch Covers

Decision Lens

Start with whether the credit itself is transferable. A back-to-back structure is not the same as a transferable credit: it usually creates a separate bank obligation with separate document, timing, and collateral requirements.

Evaluation Checklist

• Identify the original buyer, first beneficiary, second beneficiary, issuing bank, transferring bank, and any bank issuing a secondary credit.
• Compare amounts, expiry dates, shipment deadlines, document requirements, and substitution rights across the primary and secondary credits.
• Check transfer language, amendments, assignment or transfer notices, document-substitution records, bank approval, collateral, and reimbursement arrangements.
• Review whether the structure changes supplier-payment timing, working capital, fraud exposure, document discrepancy risk, or bank credit exposure.
• Treat legal enforceability, sanctions, tax, and accounting conclusions as professional-advice areas.

Common Mistakes

• Assuming any LC can be transferred without explicit transfer language.
• Treating back-to-back credits as one instrument rather than separate bank undertakings.
• Ignoring mismatched expiry dates, shipping dates, or document wording between linked credits.
• Reviewing intermediary margin without the document-substitution and reimbursement evidence.

In this section

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