Transferable documentary credit
Letter of credit allowing the beneficiary to transfer all or part of the credit to one or more second beneficiaries.
Transferable documentary credit
A transferable documentary credit is a letter of credit that allows the first beneficiary (usually a commercial intermediary) to ask the bank to transfer all or part of the credit to one or more second beneficiaries (the actual suppliers).
Typical use
An international trader purchases goods from a supplier and resells them to an end buyer. The final buyer opens a transferable credit in favor of the trader, who transfers it partially to his supplier. The trader keeps his margin.
Conditions
The credit must be expressly designated as “transferable”. The transfer can only be made by the designated bank (transferring bank). The credit can only be transferred once (second beneficiaries cannot transfer again).
Substitution of documents
The first beneficiary can substitute its own invoices (at a higher amount) for those of the second beneficiaries, thus preserving the confidentiality of its margin.
Applicable rules
Article 38 of the ICC UCP 600.
Alternative
Back-to-back credit is an alternative where two separate credits are issued: a primary credit from the final buyer and a secondary credit from the trader to its supplier, backed by the first.