Transferable letter of credit
| Transferable letter of credit |
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| See also |
Transferable letter of credit permits owner (initial beneficiary) to transfer the credit to another beneficiary. It is used in international trade as an alternative to confirmed letter of credit or advance payment. In a transferable letter of credit bank (issuer) includes rules of transfer of the credit to another beneficiary. The secondary beneficiary is usually the seller who receives it as a form of payment.
The party in whose favors the credit is opened is the original beneficiary of the credit. Second beneficiary is the person to whom the credit is transferred in whole or in part, if the letter of credit is a transferable letter of credit. Second beneficiary enjoys almost the same rights as that of original beneficiary (Popoli, G.S., 2013, s.256).
Transfer criteria
The credit transfer can be considered made if:
- First beneficiary is the customer of transferring bank
- All credit terms are accepted by the transferring bank
- The percentage of insurance coverage if required by the original Letter of credit
- Should be issued in an irrevocable form (UCP 600, 2007, art. 38).
Credit should be transferred only when exactly corresponds to the terms of the agreement. The exceptions to this principle are:
- Total amount of the credit
- Unit cost – may be reduced
- Date of the end of the contract – may be decrease
- The last date of shipment or the specified date of shipment
- Expiration date
The name of the first beneficiary can be displace by the name of the customer on the credit card. If the customer name is necessary for the loan to appear in any document other than invoice, such a requirement must be reflected in the transferred loan (UCP 600, 2007, art. 38).
Transmission of documents by second beneficiary must be in transferring bank, which is authorized to make the transfer and is mentioned in the letter of credit.
First Beneficiary may in his request for transfer that negotiation is to be done to a second beneficiary at the place to which the credit has been transferred. This form letter of credit is preferred in trades and transit which beneficiary firm is no the producer of good but is only broker or supplier (Ozkan O, 2016, s.74).
Types of payments letter of credit
Transferable letter of credit is one of the type in terms of payment. Other types of payments are (Bayram O,. 2014, s.51-52):
- Sight Payment Letter of credit
- Deferred Payment Letter of credit
- Acceptance Credit Letter of credit
- Negotiable Letter of credit
- Revolving Letter of credit
- Green Clause Letter of credit
- Red Clause Letter of credit
- Back to Back Letter of credit
Transferable letter of credit or Confirmed letter of credit?
Confirmed letter of credit requires the attention two banks, while the transferable letter of credits is only one bank. For this reason it can be a more convenient way for the buyer makes deal with only one bank.
References
- Bayram, O., Omer, O., (2014). Is the letter of credit losing its significance? A new payment method in International Trade International Journal of Arts and Commerce, 3(7), 50-58.
- Kozolchyk, B. (1992). The paperless letter of credit and related documents of title. law and Contemporary Problems, 55(3), 39-101.
- Omer, O., Oguzhan, O., Important and Critical Issues of Complying Presentation Based Upon Letter of Credit (L/C) Payment. Journal of International Trade, Logistics and Law, 2(2), 2016, 73-80.
- Popoli, G.S. (2013). Startegic Credit Management in Banks. PHI, Delhi. s. 253-257.
- Uniform Customs and Practice for Documentary Credits (2007) UCP 600. International Chamber of Commerce.
Author: Beata Kocyłowska
