Transferable Credit

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Under Article 48 of the Uniform Customs and Practice (UCP) No. 500, describes a transferable credit as "A transferable credit is a credit under which the beneficiary (first beneficiary) may request the authorized bank to pay, incur a deferred payment undertaking, accept or negotiate (the "transferring bank"), or in the case of a freely negotiable credit, the bank specifically authorized in the credit as a transferring bank, to make the credit available in the whole or in part to one or more other beneficiary/ies (second beneficiary/ies)".

A credit can only be transferred if it is expressly designated as "transferable" by the issuing bank. A nominal credit may not be transferred. If a credit bears the terms = divisible, assignable or transmissible, such terms do not render the credit as transferable.

Even if a credit designates as transferable, the transferring bank is under no obligation to such transfer, but if it does consent to the transfer it shall so subject to the extent and in the manner expressly consented by the bank.

The transferring bank's charges such as commissions, fees, costs and expenses are payable by the first transferring beneficiary unless otherwise stated or agreed. Such charges are required to be paid first as otherwise the transferring bank is not obliged to effect any transferring transactions.

A transferable credit may be transferred only once, unless it is stated otherwise. In this respect the second beneficiary may not request for the credit to be transferred to a subsequent third beneficiary.

However, a re-transfer to the first beneficiary is possible. Generally, the credit may be transferred only on terms and conditions specified in the origin credit, the following terms may be amended"
  1. the amount of the credit
  2. the unit price, if so stated
  3. the expiry date of the credit
  4. the final date for presentation of the documents
  5. the latest shipment dates/details
  6. the percentage of insurance coverage
The first beneficiary may also substitute his own invoices and drafts for those of the second beneficiary to comply with the terms and conditions of the original credit.

Assignment of Proceeds

A credit may not be transferred unless specifically designated as such. However, Article 49 of the UCP states that this does not affect the beneficiary's right to assign any proceeds to a third party, in accordance with the provisions of the applicable law of the country.

Assignment of the proceeds should not be mistaken to mean assignment of the right to perform under the said credit itself.

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