A transferable LC gives the intermediary the opportunity to apply to the nominated bank for the transfer of the LC for the benefit of its supplier. Thus, the intermediary buys the goods using the same LC under which it resells goods to the buyer.
By transferring the LC intermediary releases it‘s rights to the part of received LC amount to the second beneficiary of the LC. When transferring letter of credit, intermediary is only allowed to make following changes to the original LC:
- may lower LC amount and unit price of goods;
- may shorten shipment date and date of presentation of documents;
- may increase insurance value;
- may show it‘s name and address instead of the LC applicant, i.e. may become an LC applicant.
The transferable LC allows for intermediating major goods transactions with minor investments. The supplier (= the second beneficiary) has to fulfil the terms and conditions of the LC and submit the documents. The intermediary (= the first beneficiary) replaces only the invoice and bill of exchange of the second beneficiary (increase by its commission/profit) upon the arrival of the documents at the transferring bank.
If the terms and conditions of the LC allow for partial consignments, the LC can be transferred to several second beneficiaries (not exceeding the initial amount or quantity of goods).