Understanding the Impact of Master LC Amendments on Back-to-Back LC Transactions

Intro:

This note aims to clarify how amendments to a master letter of credit (LC) may impact a corresponding back-to-back LC (sometimes referred to as the “baby LC”) in a typical back-to-back LC structure. It also addresses the practical considerations around the timing and coordination of such amendments — specifically whether both LCs must be amended simultaneously, or if acceptance can be deferred at one end pending actions at the other.

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QUESTION

Dear Mr. Old Man

Can you help me In understanding what amendments in inward Lc will affect the Outward LC. Also at different stages of business

Also wanted to understand in business case scenario of that are they amended together or can we keep the inward amendment ” waiting for acceptance” till the Linked Outward back to back LC is accepted.

Regards

Supriya Das

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ANSWER

Dear Supriya Das,

Thank you for your query.

As I understand it, you’re referring to a back-to-back LC transaction, where your customer is the beneficiary of a master LC and requests issuance of a back-to-back LC (sometimes called the “baby LC”) in favor of their supplier. You’re looking to understand:

1. What types of amendments to the master LC may affect the back-to-back LC, and
2. Whether both LCs should be amended at the same time, or if it’s possible to wait before accepting the master LC amendment until the back-to-back LC is accepted.

1. Impact of Master LC Amendments on the Back-to-Back LC

Amendments to the master LC may require corresponding amendments to the back-to-back LC, depending on the nature of the changes and the stage of the transaction. Common examples include:

• Amount changes → may affect the value of the baby LC.
• Shipment date or expiry extension → often requires matching adjustments in the back-to-back LC, typically with shorter timelines.
• Changes to documents, payment terms, or goods description → may need to be passed on if those terms were duplicated in the back-to-back LC.

Whether or not a corresponding amendment is needed depends on how much of the master LC’s content was replicated in the back-to-back LC, and whether goods have already been shipped or documents presented.

2. Timing and Coordination of Amendments

Although the back-to-back LC generally mirrors the master LC, they are separate and independent instruments. It’s common for traders to delay acceptance of a master LC amendment until the related amendment to the back-to-back LC has been accepted by the supplier.

However, it’s important to be aware of the risk:

• Even when requested, the supplier may not confirm in advance whether they accept or reject the amendment.
• Under UCP 600 Article 10(c), a beneficiary is deemed to have accepted an amendment only by making a presentation that complies with it.
• So, unless the supplier explicitly confirms, the trader may not know whether the amendment is accepted until presentation.

This means there’s a commercial decision to be made: whether to accept the master LC amendment without certainty on the supplier’s acceptance, or to hold it in “pending” status until more clarity is available.

Best regards,

Mr. Old Man