In back-to-back trading you buy and sell the same product, in the same quantity and for the same delivery period, at roughly the same moment. You do not hold the product in stock: often it goes straight from the supplier to your customer. Your margin is the difference between the purchase and the sales price, minus costs. Back-to-back is common in dairy ingredient trading, especially for traders without their own storage.
An example: you buy 48 t of sweet whey powder from a producer in the Netherlands and sell the same 48 t to a food manufacturer in Germany, delivery in March, in two loads. The trucks load at the producer and drive directly to your customer. You have a purchase contract and a sales contract that belong together. Your position for this product and period stays at zero.
Back-to-back limits price risk, but it does not remove all risk. Most problems come from differences between the two contracts:
Bestellingsbeheer in Moo Software supports back-to-back orders and direct deliveries alongside call-off orders. Purchase and sales sides are linked, so positions, planning and stock update together when an order is entered or changed. Credit limits help control exposure on customers, currency hedges can be linked to the contracts involved, and contract authorisation based on the four-eyes principle adds a check before a deal is final.
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Not necessarily. Back-to-back refers to buying and selling at the same time. The goods can be delivered directly from supplier to customer, but they can also pass through a warehouse.
Yes. Both contracts are in your position and cancel each other out. If the net result is not zero, check whether one side has changed.
Check the tolerances in both contracts. If the difference is within the customer’s tolerance, invoice the actual quantity. If not, you need to source the shortfall elsewhere or agree a solution with the customer.
