Letter of Credit
Documentary L/C is one of the most widely used settlement methods and plays an important role in international trade. The credit of the issuing bank is replaces the commercial credit of the importer and exporter.
Ⅰ. What is L/C and its characteristics
L/C is a conditional bank payment guarantee in favor of the beneficiary. The bank is committed to make the payment on condition of the compliance of the terms under the L/C, which request the beneficiary to submit to the designated bank the specified documents within a certain period of time.
Three characteristics of L/C:
1) The issuing bank is held for the primary payment responsibility. The issuing bank is obligated to make the payment so long as the documents provided by the beneficiary are in compliance with the terms of the L/C, whether or not the applicant can fulfill the duty of payment.
2) L/C is based on the presence of documents and is actually a transaction of documents. Disputes over the goods will be settled separately by the importer and exporter.
3) L/C is independent from the trade contract, which implies that L/C can exist when the trade contract between the seller and buyer no longer exists.

Ⅰ. What is Transferable L/C
A transferable L/C is an L/C under which the beneficiary (first beneficiary) may request the bank authorized to pay and assuming the a deferred payment responsibility, acceptance or negotiation (the "Transferring Bank"), or, in the case of a freely negotiable credit, the transferring bank as specifically authorized in the L/C, to transfer the credit in whole or in part to one or more other beneficiary(ies) (second beneficiary(ies)).
Ⅱ.Related parties
1. First Beneficiary — also known as the transferor, usually refers to the intermediary or middleman of the transaction, and is the beneficiary of the original L/C.
2. Second Beneficiary — also known as the transferee, is actually the supplier. One L/C can involve several second beneficiaries, because the middleman may divide the L/C into several parts to be transferred to different suppliers when partial shipment is allowed.
3. Transferring Bank — is the bank arranging the L/C transfer for the first beneficiary, and is usually designated and authorized by the Issuing Bank.
Ⅲ. Transaction Brief
There are generally two types of transfer: full transfer and partial transfer.
A full transfer is sometimes known as transfer in its entirety, which means that the whole amount of the L/C is transferred to a single second beneficiary.
In case of partial transfer, only part of the L/C value is transferred to the second beneficiary (beneficiaries).
Conditions for transfer:
1. The L/C must specify that it is "irrevocable", "transferable" and is subject to Uniform Customs and Practice for Documentary Credits UPC500;
2. BIN should be specified as the transferring bank in the L/C;
3. The terms and conditions are complete and clear.
4. The original L/C and the application should be given to BIN at transfer.
Methods of transfer:
1.Transfer with replacement of documents: Only the invoice(s) and draft(s) are allowed to be replaced. Any other documents specified by the L/C must be submitted by the transferee(s) via their bank, which means that all transport documents, insurance certificates, etc. submitted by the second beneficiary (beneficiaries) should be used.
2. Transfer without replacement of documents: You do not need to take any action or present any documents to BIN. BIN only needs the documents submitted by the transferee(s) via their bank and you do not need to replace any document.
Details of transfer:
Subject to the stipulations in the Article No.48 of UCP500, only the following items can be changed in the transfer:
1.Name and address of beneficiary/applicant unless DC specifies otherwise;
2.Reduce unit price and/or L/C amount;
3.Reduce quantity of goods (if partial shipment is allowed);
4.Advance expiry date and latest shipment date, and shorten period of presentation to reserve time for replacement of documents;
5. Increase the insurance amount to provide the same insurance amount as stipulated in the original L/C.
Virtues of transferable L/C:
1. No funding is needed and the risk of dishonor due to discrepancy of documents can be avoided, as the bank usually will require the receipt of funds from the issuing bank before making the payment to the transferee.
2. Work on document preparation is lightened. Documents such as the bill of lading, the insurance policy, etc are all made by the transferee; the middleman only needs to substitute the invoice and the packing list at replacement of documents.
Contact: 0574-87371313 Ms. Zhu / 0574-87372311 Mr. Chen