Transfer
A transferable documentary credit, as defined in UCP 600 sub-article 38 (b), is a credit that specifically states it is transferable, thereby allowing for it to be made available in whole or in part to one or more other beneficiaries (each to be known as a second beneficiary), at the request of the beneficiary (who will become known as the first beneficiary).
A documentary credit that is made available to a second beneficiary will be known as a transferred credit.
A transferable documentary credit may only be transferred by a bank that is nominated to honour or negotiate or, if it is available with any bank, by a bank that is specifically authorised in that credit to effect a transfer. If a bank agrees to transfer it will become known as the transferring bank. An issuing bank may also transfer a transferable documentary credit.
A transferable documentary credit can be used in any industry and for any type of goods, service or performance that is being delivered or provided. It is designed for use where the beneficiary of the transferable documentary credit is not the actual supplier, manufacturer or producer of all or part of the goods, or is not the provider of all or part of the required services or performance.
When a nominated bank, or a bank that is specifically authorised to transfer, consent to a request for transfer, a second beneficiary will receive a documentary credit (transferred credit) substantially in the form of the transferable documentary credit that was issued in favour of the first beneficiary. A first beneficiary may request that certain terms and conditions, as mentioned in UCP 600 sub-article 38 (g), be reduced or curtailed.
The issuance of a transferred documentary credit does not require, or use, any credit facility in the name of the beneficiary (first beneficiary). This is due to the fact that an advice of a transferred documentary credit will incorporate the irrevocable undertaking of the bank that issued the transferable documentary credit, and where confirmation has been added to that transferable documentary credit, the confirmation of the confirming bank. It should be noted that the confirming bank may or may not be the transferring bank.
Assignment
A common form of assignment is when a beneficiary uses it as a means to pay a supplier of goods, services or performance shipped or provided to an applicant, from the proceeds due to the beneficiary under a documentary credit.
Definition of assignment of proceeds: "An instruction, often irrevocable, given by the beneficiary of a documentary credit authorising the payment of all or part of the proceeds due to it to a third party."
There is limited information in UCP 600 article 39 as to how notices of assignment should be handled. Our training module will walk you through the process.
It should be noted that an assignment of proceeds is subject to the provisions of the applicable law, and such law would be that of the assignor and the bank that is being asked to accept, acknowledge and act on the instructions contained therein.
This subject is covered in far greater detail within our training module ‘documentary credits in practice' which can be purchased at https://www.tradefinance.training/shop/