Can Every LC Be Transferred?
Can Every LC Be Transferred?
When Is a Letter of Credit Transferable?
Under Article 38 of UCP 600, a letter of credit can only be transferred if it is expressly stated as “transferable” by the issuing bank. If the word transferable does not appear in the LC, it cannot be transferred. Even when permitted, transfer may only occur once, although it can be split among multiple second beneficiaries. The nominated bank must also agree to handle the transfer.
When Can’t a Letter of Credit Be Transferred?
- If the LC text does not explicitly say it is transferable.
- If the issuing bank restricts transfer due to compliance or credit reasons.
- If the LC is a standby LC or a red clause LC without transferability provisions.
- If the bank charges or conditions make transfer impractical compared to alternatives.
What Are the Alternatives to Transfer?
A new LC is issued using the incoming LC as collateral. This replicates coverage without a formal transfer. Useful when the supplier requires a direct LC but the master LC is not transferable.
The beneficiary assigns the right to receive payment to a supplier or financier. Unlike a transfer, the beneficiary remains responsible for compliance and document presentation.
Frequently Asked Questions
Can every LC be transferred?
No. Only letters of credit marked as transferable by the issuing bank under UCP 600 can be transferred. If transferability is not stated, the LC cannot be transferred.
What’s the difference between transfer and assignment?
A transfer substitutes a second beneficiary to draw under the LC, subject to the issuing bank’s consent. An assignment only redirects payment proceeds to another party. In an assignment, the original beneficiary remains responsible for document presentation and compliance.
Can a transferable LC be transferred more than once?
No. Transfer can only occur once, although a transferable LC can be divided among multiple second beneficiaries at that stage.
Can standby letters of credit be transferred?
Standby LCs can sometimes include transferability, but in practice most are not transferable unless explicitly written. More often, beneficiaries use assignment of proceeds or back-to-back structures instead.
Need Help Structuring a Transferable LC?
Financely supports clients with structuring transferable, back-to-back, and assignment of proceeds solutions. Submit your transaction details and we will recommend the optimal path.
Start Client IntakeFinancely provides advisory, underwriting, and arrangement services through regulated partners. Financely is not a bank and does not issue letters of credit or loans. Transferability depends on issuing bank language, UCP 600 or ISP98 rules, and legal enforceability. This content is for informational purposes only and does not replace legal or financial advice.
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