A transferable letter of credit permits a first beneficiary to request that available credit be transferred to one or more second beneficiaries when the credit expressly allows transfer. It is often used when an intermediary sources goods from an underlying supplier.
Who are the parties?
The applicant requests the credit, the issuing bank issues it, the first beneficiary receives it, and a transferring bank may make it available to a second beneficiary under permitted terms.
Can any letter of credit be transferred?
No. The credit must expressly state that it is transferable, and transfer remains subject to the applicable rules and bank agreement. Assignment of proceeds is different from transfer of the credit.
Which terms can change on transfer?
Under UCP 600, specified items such as amount, unit price, expiry and shipment period may generally be reduced or shortened, while other terms must remain consistent. The exact instrument controls.
What risks should be reviewed?
Document discrepancies, timing, substitution of invoices, confidentiality, bank fees and supplier performance can affect payment. Every beneficiary must understand documentary requirements.
What records should be retained?
Keep the original credit, transfer request, bank advice, amendments, presentations, discrepancy decisions and settlement evidence.
