Transfer Letter of Credit Introduction
A transferable letter of credit is a type of financial guarantee and allows the first beneficiary to transfer some or all the credit to another party, which creates a secondary beneficiary. The party that at first accepts the transferable letter of credit from the bank is referred to as the first, or primary beneficiary.
Specific criteria govern the transferable letter of credit, and there may be additional charges involved, typically borne by the first beneficiary. This financial instrument provides assurance of payment to the supplier or manufacturer, leveraging the credit of the buyer’s banker.
However, the issuing bank retains the right to decline a transfer request if the terms and conditions are not acceptable.
What can be changed when transferring a Letter of Credit?
Article 48 of the UCP 600 limits changes to the following:
– The L/C amount may be reduced.
– Unit prices may be reduced.
– The expiry and latest shipping dates may be curtailed.
– The time period after the date of shipment for presenting documents to the bank may be curtailed.
– The name of the beneficiary is substituted for the name of the applicant (buyer), but if the applicant’s name is required to be stated in any document other than the invoice, this requirement must be adhered to.
– If an insurance document is required, the coverage may be increased to provide coverage as required by the original L/C.
– The place of payment or negotiation may be changed to the location of the transferee.
