Transferable Letter of Credit

Definition

Transferable Letter of Credit. It is a type of letter of credit that names a middleman as beneficiary and allows him/her to give another party, the actual vendor, certain rights to present documents and receive payment under the letter of credit. The transfer must be done by a financial institution authorized to do so by the issuing financial institution and involves notifying the transferee (called the second beneficiary) of what documents he/she must present. The documents must be the same as those required in the letter of credit. The price of the products may be reduced. The middleman's name may be required to be listed in the transferee's invoices as the buyer, thereby allowing the middleman to substitute invoices at a higher price and receive the difference without disclosing the name of the actual end-buyer. The transferring financial institution is not obligated to pay documents presented under the transfer. Such obligation remains with the issuing financial institution.