Transferable Letters of Credit

Global Trade Risk Management

Strategies LLC
 Global Trade Risk Management
Strategies LLC

Transferable L/Cs

Contract 1
End-Buyer Middleman

Transfer of a letter of credit involves a middleman. The middleman has

identified a buyer of a product that he has also identified a source of.
The middleman signs a contract to sell the goods to this buyer.

2
 Global Trade Risk Management
Strategies LLC

Transferable L/Cs

Contract 1 Contract 2
End-Buyer Middleman Supplier

The middleman then turns around and signs a contract with the
supplier. The contract with the end-buyer states that payment will be
made by means of a transferable commercial letter of credit and the
contract with the supplier states that payment will be made by means of
a transfer of a commercial letter of credit.

3
 Global Trade Risk Management
Strategies LLC

Transferable L/Cs

Contract 1 Contract 2
End-Buyer Middleman Supplier

L/C Application L/C

Issuing
Bank

The end-buyer applies for a transferable letter of credit. His bank

reviews the request, the end-buyer’s credit, etc. and, if satisfied, issues
the L/C. 4
 Global Trade Risk Management
Strategies LLC

Transferable L/Cs

Contract 1 Contract 2
End-Buyer Middleman Supplier

Transfer Transfer
L/C Application L/C Request L/C

Issuing Transferring
Bank Bank

The middleman requests that a transfer L/C be issued to the supplier.

The transfer L/C will call for all of the same documents as the “master”
L/C but may be for a lesser amount. 5
 Global Trade Risk Management
Strategies LLC

Transferable L/Cs

Goods

Contract 1 Contract 2
End-Buyer Middleman Supplier

Transfer Transfer
L/C Application L/C Request L/C

Issuing Transferring
Bank Bank

The supplier produces the goods and ships them to the end-buyer.
(The middleman is not involved in production or shipment—the supplier
must be in a position to handle this.) 6
 Global Trade Risk Management
Strategies LLC

Transferable L/Cs

Goods

Contract 1 Contract 2
End-Buyer Middleman Supplier

Transfer Transfer
L/C Application L/C Request L/C
Docu-
ments

Issuing Transferring
Bank Bank

The supplier collects and presents the documents called for in the
transfer L/C. Recall that these are the same documents as required by
the master L/C, though the invoice may be for less. 7
 Global Trade Risk Management
Strategies LLC

Transferable L/Cs

Goods

Contract 1 Contract 2
End-Buyer Middleman Supplier

Transfer Transfer
L/C Application L/C Request L/C
Invoice Docu-
ments

Issuing Transferring
Bank Bank

The middleman is notified that documents have been presented by the

supplier and is given an opportunity to substitute his invoice, for a
higher amount, for the invoice of the supplier. 8
 Global Trade Risk Management
Strategies LLC

Transferable L/Cs

Goods

Contract 1 Contract 2
End-Buyer Middleman Supplier

Transfer Transfer
L/C Application L/C Request L/C
Invoice Docu-
ments

$
Issuing Docu- Transferring $
Bank ments Bank
$
The transferring bank submits the assembled documents to the issuing
bank for examination and payment. Note that the transferring bank
plays an administrative role and has no undertaking to pay until 9
payment is received from the issuer.
 Global Trade Risk Management
Strategies LLC

Transferable L/Cs

Goods

Contract 1 Contract 2
End-Buyer Middleman Supplier

Transfer Transfer
L/C Application L/C Request L/C
Docu- Invoice Docu-
ments ments

$
$
Issuing Docu- Transferring $
Bank ments Bank
$
The issuing bank charges the end-buyer (the L/C applicant) and delivers
the documents to them. Note that the supplier’s invoice is NOT part of
these documents. 10
 Global Trade Risk Management
Strategies LLC

Transferable L/Cs

Goods

Contract 1 Contract 2
End-Buyer Middleman Supplier

Transfer Transfer
L/C Application L/C Request L/C
Docu- Invoice Docu-
ments ments

$
$
Issuing Docu- Transferring $
Bank ments Bank
$
The end-buyer uses the documents to pick up the goods, but is likely
never to learn the identity of the actual supplier as the supplier’s name
is probably not in the documents that the end-buyer receives. 11
Credits

This set of slides comes from training classes

developed and taught by
Global Trade Risk Management Strategies LLC.
For Information about upcoming seminars
and webinars, visit
http://www.gtrisk.com/Upcoming_Seminars.html.

Global Trade Risk Management

Strategies LLC