Wednesday, 21 September 2011

Transferable Letter of Credit

A Transferable Letter of Credit is used in cases where there are three parties to a transaction; an Importer (Buyer), Exporter (Supplier), and an intermediary party, such as a broker, who is responsible for arranging the sale.

In such a transaction, the intermediary party requests a Letter of Credit from the Importer as protection against non-payment. 

The Exporter, in turn, wants assurance from the intermediary party that payment will be made, and will also request a Letter of Credit. 

It may be the case, however, that the intermediary party has little working capital or does not have access to a line of credit with its bank to issue a separate Letter of Credit to the Exporter. As an alternative, the intermediary party may provide such assurance to the Exporter by transferring over a portion of the Letter of Credit it received from the Importer. This is termed a Transferable Letter of Credit.

To be able to transfer a Letter of Credit, the intermediary party must specifically request a Transferable Letter of Credit from the Importer.

The Letter of Credit must nominate a bank, generally the Advising Bank, who is authorized to effect a transfer.

The intermediary party would be the Beneficiary of the Letter of Credit and, in a Transferable Letter of Credit transaction, is referred to as the First Beneficiary. The First Beneficiary would then ask the Transferring Bank to transfer, in part or in full, its rights under the Letter of Credit to the manufacturer of the goods, who is referred to as the Second Beneficiary.

A Transferable Letter of Credit may be transferred only once; therefore, a Second Beneficiary is unable to transfer a portion of a Transferable Letter of Credit to a third beneficiary. It may, however, be transferred to more than one Second Beneficiary, in which case the L/C must state that partial shipments are allowed.

The following is a simplified example of a Transferable Letter of Credit transaction:

Importer: ABC Buyer, Hong Kong
Intermediary Party (Middleman): UK Trading Company Ltd
Supplier: XYZ Supplier Company Ltd, UK
Issuing Bank: WorldWide Bank
Transferring Bank: Big Bank UK PLC


As per ABC Buyer’s instructions, WorldWide Bank issued a Transferable Letter of Credit in favour of UK Trading Company Ltd who is acting as the intermediary party in the trade transaction. This Transferable Letter of Credit is in the amount of USD $100,000 and Big Bank UK is authorized and willing to do the transfer.



The description of goods is 5,000 pairs of shoes at USD $20 per pair. Once UK Trading Company Ltd as the First Beneficiary receives the Letter of Credit, it requests Big Bank UK to transfer USD $75,000 to XYZ Supplier Company, stating the same quantity of goods, 5,000 pairs of shoes, but at USD $15 per pair.


Big Bank UK advises the transfer has been made to XYZ Supplier Company Ltd, who now becomes the Secondary Beneficiary of the Letter of Credit.



Once XYZ Supplier Company Ltd has shipped the goods, it presents documents in accordance with the Transferable Letter of Credit, along with its draft for USD $75,000, to Big Bank UK. Big Bank UK then notifies UK Trading Company Ltd of the presentation.



UK Trading Company Ltd will present its own invoice and draft showing a value of USD $100,000 in order to comply with the original Letter of Credit. Big Bank UK checks the documents  then (if all in order) substitutes these documents for those presented by XYZ Supplier Company Ltd and forwards the documents to WorldWide Bank. 


Assuming all documents comply with the L/C terms, Big Bank UK receives USD$100,000 and pays USD $75,000 to XYZ Supplier Company Ltd and USD $25,000 to UK Trading Company Ltd.



Note:

  
It is advisable to request expert advice when requesting a Transferable Letter of Credit, particularly if you do not wish to run the risk of disclosure of names or values to the end buyer and supplier. It is possible to request that the L/C terms stipulate that documents are to be drawn up in such a way that this risk is minimised.



Banks will not however bear any responsibility for inadvertent disclosure within documentation once issued.


Transferable Credits are subject to UCP 600 Article 38.





22 comments:

  1. Hello
    could anyone provide a draft of such a transferable LC?
    many thnaks.

    ReplyDelete
  2. good information

    ReplyDelete
  3. What about the insurance ? In the example above, the second beneficiary of the LC will insure the goods based on 75,000 $, while the Issuing bank will want to see the insurance based on 100,000$.

    ReplyDelete
  4. my question is; the expeiry date should longer or shorter when the bank is transfering this export LC to second beneficairy? your answer is much appreciated.

    ReplyDelete
  5. CAN THE 1ST BENEFICIARY PRESENT A TRANPORT DOCUMENT?

    ReplyDelete
  6. what procedure needs to be followed if second beneficiary is a foreign party??

    ReplyDelete
  7. A LC é irrevocable transferable, porém consta somente o primeiro beneficiário. O banco pode transferir para qualquer outra empresa que o primeiro beneficiário orientar?

    ReplyDelete
  8. HOW IS TRANSFERRABLE LC CANCELLED

    ReplyDelete
  9. Such a interesting post and article you write up!! Thank you so much for sharing this post. Loved it!
    Shoes Manufacturer and Exporter

    ReplyDelete
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  12. We are authorized Financial consulting firm that work directly with
    A rated banks eg Lloyds Bank,Barclays Bank,hsbc bank etc
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  13. We are authorized Financial consulting firm that work directly with
    A rated banks eg Lloyds Bank,Barclays Bank,hsbc bank etc
    We provide BG, SBLC, LC, LOAN and lots more for client all over the world.
    Equally,we are ready to work with Brokers and financial
    consultants/consulting firms in their respective countries.
    We are equally ready to pay commission to those Brokers and financial
    consultants/consulting firms.
    Awaiting a favourable response from you.
    Best regards
    WALSH SMITH, ROBERT
    email : info.iqfinanceplc@gmail.com
    skype: cpt_young1

    ReplyDelete
  14. We are authorized Financial consulting firm that work directly with
    A rated banks eg Lloyds Bank,Barclays Bank,hsbc bank etc
    We provide BG, SBLC, LC, LOAN and lots more for client all over the world.
    Equally,we are ready to work with Brokers and financial
    consultants/consulting firms in their respective countries.
    We are equally ready to pay commission to those Brokers and financial
    consultants/consulting firms.
    Awaiting a favourable response from you.
    Best regards
    WALSH SMITH, ROBERT
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  15. "We are authorized Financial consulting firm that work directly with
    A rated banks eg Lloyds Bank,Barclays Bank,hsbc bank etc
    We provide BG, SBLC, LC, LOAN and lots more for client all over the world.
    Equally,we are ready to work with Brokers and financial
    consultants/consulting firms in their respective countries.
    We are equally ready to pay commission to those Brokers and financial
    consultants/consulting firms.
    Awaiting a favourable response from you.
    Best regards
    WALSH SMITH, ROBERT
    email : info.iqfinanceplc@gmail.com
    skype: cpt_young1
    "

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  17. "We are direct providers of Fresh Cut BG, SBLC and MTN which are specifically for lease, our bank instrument can be engage in PPP Trading, Discounting, signature project (s) such as Aviation, Agriculture, Petroleum, Telecommunication, construction of Dams, Bridges, Real Estate and all kind of projects. We do not have any broker chain in our offer or get involved in chauffer driven offers.

    We deliver with time and precision as sethforth in the agreement. Our terms and Conditions are reasonable, below is our instrument description.

    The procedure is very simple; the instrument will be reserved on euro clear to be verified by your bank, after verification an arrangement will be made for necessary bank documents and stock testing expenses, the cost of the Bank Guarantee will be paid after the delivery of the MT760,

    DESCRIPTION OF INSTRUMENTS:

    1. Instrument: Bank Guarantee (BG/SBLC) (Appendix A)
    2. Total Face Value: Eur 5M MIN and Eur 10B MAX (Ten Billion USD).
    3. Issuing Bank: HSBC Bank London, Credit Suisse and Deutsche Bank.
    4. Age: One Year, One Month
    5. Leasing Price: 6% of Face Value plus 2% commission fees to brokers.
    6. Delivery: Bank to Bank swift.
    7. Payment: MT-103 or MT760
    8. Hard Copy: Bonded Courier within 7 banking days."

    ReplyDelete
  18. "We are direct providers of Fresh Cut BG, SBLC and MTN which are specifically for lease, our bank instrument can be engage in PPP Trading, Discounting, signature project (s) such as Aviation, Agriculture, Petroleum, Telecommunication, construction of Dams, Bridges, Real Estate and all kind of projects. We do not have any broker chain in our offer or get involved in chauffer driven offers.

    We deliver with time and precision as sethforth in the agreement. Our terms and Conditions are reasonable, below is our instrument description.

    The procedure is very simple; the instrument will be reserved on euro clear to be verified by your bank, after verification an arrangement will be made for necessary bank documents and stock testing expenses, the cost of the Bank Guarantee will be paid after the delivery of the MT760,

    DESCRIPTION OF INSTRUMENTS:

    1. Instrument: Bank Guarantee (BG/SBLC) (Appendix A)
    2. Total Face Value: Eur 5M MIN and Eur 10B MAX (Ten Billion USD).
    3. Issuing Bank: HSBC Bank London, Credit Suisse and Deutsche Bank.
    4. Age: One Year, One Month
    5. Leasing Price: 6% of Face Value plus 2% commission fees to brokers.
    6. Delivery: Bank to Bank swift.
    7. Payment: MT-103 or MT760
    8. Hard Copy: Bonded Courier within 7 banking days."

    ReplyDelete
  19. "We are direct providers of Fresh Cut BG, SBLC and MTN which are specifically for lease, our bank instrument can be engage in PPP Trading, Discounting, signature project (s) such as Aviation, Agriculture, Petroleum, Telecommunication, construction of Dams, Bridges, Real Estate and all kind of projects. We do not have any broker chain in our offer or get involved in chauffer driven offers.

    We deliver with time and precision as sethforth in the agreement. Our terms and Conditions are reasonable, below is our instrument description.

    The procedure is very simple; the instrument will be reserved on euro clear to be verified by your bank, after verification an arrangement will be made for necessary bank documents and stock testing expenses, the cost of the Bank Guarantee will be paid after the delivery of the MT760,

    DESCRIPTION OF INSTRUMENTS:

    1. Instrument: Bank Guarantee (BG/SBLC) (Appendix A)
    2. Total Face Value: Eur 5M MIN and Eur 10B MAX (Ten Billion USD).
    3. Issuing Bank: HSBC Bank London, Credit Suisse and Deutsche Bank.
    4. Age: One Year, One Month
    5. Leasing Price: 6% of Face Value plus 2% commission fees to brokers.
    6. Delivery: Bank to Bank swift.
    7. Payment: MT-103 or MT760
    8. Hard Copy: Bonded Courier within 7 banking days."

    ReplyDelete
  20. We are authorized Financial consulting firm that work directly with
    A rated banks eg Lloyds Bank,Barclays Bank,hsbc bank etc
    We provide BG, SBLC, LC, LOAN and lots more for client all over the world.
    Equally,we are ready to work with Brokers and financial
    consultants/consulting firms in their respective countries.
    We are equally ready to pay commission to those Brokers and financial
    consultants/consulting firms.
    Awaiting a favourable response from you.
    Best regards
    WALSH SMITH, ROBERT
    email : info.iqfinanceplc@gmail.com
    skype: cpt_young1

    ReplyDelete
  21. We are authorized Financial consulting firm that work directly with
    A rated banks eg Lloyds Bank,Barclays Bank,hsbc bank etc
    We provide BG, SBLC, LC, LOAN and lots more for client all over the world.
    Equally,we are ready to work with Brokers and financial
    consultants/consulting firms in their respective countries.
    We are equally ready to pay commission to those Brokers and financial
    consultants/consulting firms.
    Awaiting a favourable response from you.
    Best regards
    WALSH SMITH, ROBERT
    email : info.iqfinanceplc@gmail.com
    skype: cpt_young1

    ReplyDelete