A Transferable Letter of Credit (L/C) allows the Beneficiary to transfer in whole or in part to one or more other beneficiaries. A party to whom a L/C is transferred becomes, in effect, a "second beneficiary" under the L/C and acquires the same rights under the L/C as the "first beneficiary", for the amount transferred.
In order to be transferable, the L/C must state in a conspicuous place that it is "Transferable". This requirement protects the buyer from being supplied, without prior consent, by a source other than the one with which he contracted. Although portions of the original L/C can be transferred to more than one "second" beneficiary, transfers to "third" beneficiaries are not allowed. The L/C can be transferred only on the terms and conditions specified in the original L/C, with the following exceptions:
Any or all of the preceding terms may be reduced or curtailed.
Transferable L/Cs offer the advantage to the first beneficiary of being able to provide the protection of an L/C to their supplier without tying up their own lines of credit with their bank. The benefits are even greater for the small middleman, whose sources of financing are more limited, since he may succeed in securing sources of supply with the transferable credit of his buyer. The first beneficiary under the L/C should understand that a transferable L/C cannot guarantee confidentiality objectives. It is virtually impossible to avoid disclosure of the buyer to the supplier and the supplier to the buyer. Therefore, it is important to deal with disclosure issues from the outset of the transaction.