Back-to-back trade finance is when two separate letters of credit are used to facilitate and finance international trade deals. This back-to-back letter of credit minimises risk by adding an extra layer of security to the transaction.
The buyer sends the intermediary a letter of credit (LC) and this third party submits the primary LC to the bank as a form of collateral. Once the bank has received the primary LC, it then asks for another LC to be granted to the final supplier once goods are received. The secondary LC is only issued once the primary LC is received as collateral.