Understanding Transferable LC: Structure, Flow and Key Rules
Many traders use LC… but not all understand how Transferable LC actually works
This structure is commonly used by intermediaries (middle parties)
WHAT IS TRANSFERABLE LC?
A Transferable LC is an LC that allows the first beneficiary (trader) to transfer all or part of the LC to a second beneficiary (supplier)
ACTUAL FLOW (STEP BY STEP)
STEP 1 – Contract Structure
Buyer
→ Issues LC to Trader (First Beneficiary)
Trader
→ Has supplier (Second Beneficiary)
STEP 2 – LC ISSUED (MT700)
Issuing Bank sends LC via SWIFT MT700
To Advising Bank
LC must clearly state: “TRANSFERABLE”
STEP 3 – TRANSFER REQUEST
Trader (First Beneficiary):
- Requests bank to transfer LC
- To Supplier (Second Beneficiary)
STEP 4 – TRANSFER LC (MT720)
Advising / Transferring Bank:
Issues transferred LC To Supplier
STEP 5 – SHIPMENT
Supplier:
- Ships goods
- Prepares documents
STEP 6 – DOCUMENT SUBMISSION
Supplier submits documents through bank
STEP 7 – DOCUMENT HANDLING
Trader may:
- Replace invoice
- Adjust profit margin
STEP 8 – PAYMENT
Bank pays based on compliant documents
Final payment flows back to:
- Supplier
- Trader (margin)
KEY RULES (IMPORTANT)
- LC must state “TRANSFERABLE”
- Can only be transferred once
- Only certain terms can be changed
WHAT CAN BE CHANGED?
- Price (reduced)
- Quantity
- Shipment date
WHAT CANNOT BE CHANGED?
Core LC structure
Issuing Bank obligation
COMMON RISKS
Supplier depends on transferred LC terms
Incorrect structure → rejection
Delay in document handling
REALITY (IMPORTANT)
- Transferable LC is NOT a new LC
- It is a derived LC from the original MT700
SWIFT INVOLVED
- MT700 → Original LC
- MT720 → Transfer LC
- MT707 → Amendment
KEY INSIGHT
“Transferable LC allows trading without capital… but only works when the structure is precise.”
CONCLUSION
- Suitable for traders / intermediaries
- Requires strict wording & control
- Depends heavily on document accuracy
Need help structuring Transferable LC or reviewing LC wording? Feel free to reach out.
CONTACT US FOR ASSISTANCE:
WhatsApp:
IR. Zaki
http://www.wasap.my/60192297179/OilPetroleum
(Mr. Saif)
http://www.wasap.my/60105375779/OilPetroleum
(Ms. Nur)
http://www.wasap.my/601129291396/OilPetroleum
Email:
gngroup.sb@gmail.com
sales.gngroupsb@gmail.com
Website:
https://www.gngroupsupplies.com/
https://gngroupsupplies.blogspot.com/