What Is a Transferable Letter of Credit?

Transferable Credit refers to a letter of credit in which a bank (notifying bank) authorized by an issuing bank to use a letter of credit (notifying bank) can transfer all or part of the letter of credit to a second beneficiary at the request of the beneficiary. ^[1]

Negotiable letter of credit

The transferee stated that the transferee was responsible for delivery, but the original

A negotiable letter of credit must include the following sentence to show its function:

1. This letter of credit is transferable. (This Credit is Transferable).

2. This letter of credit allows transfer. (Transfer to be allowed).

Applicable trade methods for transferable letters of credit

1. If the importer and exporter signs the contract, the product is standardized, the packaging is standardized, the inspection is programmed, and the batch is large, the amount is large, and the source of goods comes from scattered remote places. That is, the source of goods for an order must be obtained from ports in different places. Export. In order to exchange contract products with price currency, this trade method can be simple, easy to handle, smooth loading, and secure foreign exchange settlement. Transferable Credit can be used.

Exporters may require compliance with Article 44 of the UCP

1. According to the amount of credit, it can be divided into full amount and partial amount transfer

Total Transfer

The first beneficiary is based on the distribution of the supply. If the supply comes from a manufacturer and the goods are not allowed to be shipped in batches, the full amount of the letter of credit must be transferred to the second beneficiary.

Partial Transfer

If only part of the amount listed in the negotiable letter of credit is transferred to the second beneficiary, it is said that part of the amount is transferred. Article 44 of the UCP stipulates that if the original letter of credit allows partial shipments, the first beneficiary can transfer a portion of the amount of the letter of credit to the second beneficiary, and the transferee separately ships it, and negotiates according to the letter of credit, Acceptance or payment.

2. According to whether to replace the commercial invoice, it can be divided into non-replacement invoice and replacement invoice transfer

Transfer without Substitution of Invoice This transfer method involves the original beneficiary of the letter of credit (that is, the first beneficiary) to transfer all or part of the amount of the credit to the assignee, that is, the second beneficiary Ship the goods and prepare the necessary documents, and negotiate or pay directly to the negotiating bank through or in the name of the first beneficiary. This method is relatively simple and is usually used in the practice of international trade.

Transfer with Substitution of Invoice

As the first beneficiary of the middleman, if the second beneficiary does not want to know the name of the buyer's firm, the first beneficiary can keep the confidentiality by replacing the invoice.

The specific method is as follows: after the goods are shipped by the second beneficiary, the second beneficiary prompts the bank in its own name to present the documents for negotiation or payment. The bank will replace the commercial invoice provided by the first beneficiary with the invoice presented by the second beneficiary. The invoice amount suggested by the first beneficiary should be large, and the difference between the two invoices is the profit made by the middleman. After the negotiation bank negotiates, the invoice and other documents presented by the first beneficiary are sent to the issuing bank for compensation.

3. Depending on whether the conditions listed in the transfer credit are changed, it can be divided into the original conditional transfer or the conditional transfer.

The transfer of the original conditions of use of the power of credit, generally speaking, should be transferred in accordance with the conditions listed in the original letter of credit, said the original conditions of transfer, this method is simple and easy to handle, with less risk. Where the original conditional transfer should include the following sentence to show its transfer function.

---- This L / C is transferred in accordance with the conditions set out in the original L / C.

This Credit can be transferred only on the terms and conditions specifed in the Original Credit.

Transfer of changed conditions means that the conditions listed in the original letter of credit have been changed after the transfer of the power of the letter of credit, for example:

---- The amount and unit price are lower than the original amount and unit price;

---- Letter of credit term, reminder date of document and time of shipment, earlier than original letter of credit condition;

---- The insured amount is higher than the percentage of the original letter of credit.

In addition to changing the above conditions, if there is a need to change other conditions, it depends.

4. Place of transfer can be divided into domestic transfer and foreign transfer

Domestic transfer The first beneficiary transfers the right to use the L / C to the second beneficiary. The location is the same country, which is called domestic transfer. The letter of credit should include the following sentence:

---- The transfer of this L / C is limited to the transfer to the second beneficiary in the same country.

This credit is transferable only to a second Beneficiary in the same country.

The foreign beneficiary of the first transfer of the right to use the credit to the second beneficiary of another country is called foreign transfer. The letter of credit should include the following sentence:

---- This L / C is transferred to the second beneficiary of ×××× countries.

This credit is transferable to a second Beneficiary in the ×××.

5. Who transfers can be divided into bank transfer and private transfer

Bank transfer Where the bank expressly stipulates that the bank transfer or complete the transfer formalities in accordance with the terms of the letter of credit, the first beneficiary submits an application to the bank. After the bank's review and approval, the bank shall grant the second beneficiary the transfer Advice of Transfer.

Private transfer After the first beneficiary and the second beneficiary agree to make a private transfer, the first beneficiary must give the second beneficiary a written letter of personal transfer (Letter of Personal Transfer)

The private transfer method must be the basis for long-term cooperation between the first beneficiary and the second beneficiary, and mutual trust. The first beneficiary must do two things. One is to provide the original copy of the letter of credit to the production. The factory, to prove that the transferable letter of credit has been received, reassures the production plant. Second, after delivery and shipment at the production plant, the first beneficiary and the second beneficiary jointly sign the transfer application and ask the bank to transfer the money to the production plant.