Transferable Letter of Credit

Transferable Letter of Credit :

A transferable letter of credit allows the beneficiary to act as a middleman and transfer his rights under a letter of credit to another party or parties who may be suppliers of the goods. Depending on whether the letter of credit permits partial shipments, fractional amounts may be transferred to more than one beneficiary. The letter of credit however, can be transferred only once: the secondary beneficiaries cannot transfer their rights to a third party. Transfer of a letter of credit can be made on specific application by the original beneficiary to the authorized transferring bank.

To be transferable, a letter of credit must be so marked by the issuing bank which can only do so on the applicant’s specific instructions. The applicant should be aware that any second beneficiary, the probable supplier, is usually a party not likely known to the applicant.

The terms and conditions of the transferred letter of credit must be identical to those of the original letter of credit with the following exceptions.

The original beneficiary may be shown as the applicant on the transferred credit.

The amount of the letter of credit, and unit prices if any, may be less than in the original letter of credit (the difference being the original beneficiary’s profit margin).

The latest shipment date, if any, and expiry date as shown on the original letter of credit should be shortened.

The percentage of insurance coverage, if any, should be increased to satisfy the requirements of the original letter of credit.

When a drawing takes place, the original beneficiary normally substitutes his invoices for those of the second beneficiary for up to the amount and unit prices available under the original letter of credit, and draws the difference as profit.

Transferable Letter of Credit