What is front to back letter of credit?

A front-to-back letter of credit refers to a financial instrument used in international trade that involves two separate but related letters of credit. The "front" letter is issued by the buyer's bank to the seller's bank, ensuring payment upon compliance with specified terms. The "back" letter, typically issued by the seller's bank, may serve to facilitate financing for the seller or provide additional guarantees. This arrangement helps mitigate risks for both parties involved in the transaction.