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TRANSFERRING BANK'S PAYMENT OBLIGATION

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QUERY FROM MANISH JAIN

Article 38 (h) deal with substitution of invoice and draft in transferable credit. First beneficiary has the right to substitute its own invoice & drafts for those of second beneficiaries, for an amount totaling to the full value of the credit. First, beneficiary is also permitted to draw for any difference in amount between its draft, and that of the second beneficiary. This facilitates the first beneficiary to collect its profit margins, as the difference between price quoted to applicant, and the price negotiated with second beneficiary.

Article 38 (k) directs that the presentation of documents by or on behalf of the second beneficiary must be made to the transferring bank only. In simple terms a transferable credit involves two presentations. First presentation will be from second beneficiary, which has to be done at the counters of transferring bank. Second presentation will be when the first beneficiary replaces second beneficiary's invoice & draft with own invoice & draft for presentation to the issuing, or confirming bank as the case maybe.

CLARIFICATION REQUIRED
When second beneficiary present the documents to the transferring bank, first beneficiary is authorized to replace invoice and draft, and then transferring bank present the documents to the issuing bank. What would be the module of routing of payment?

1. The transferring bank will give payment to second beneficiary, to the part of his drawings, when the transferring bank will receive the payment from issuing bank/confirming bank.
OR

2. The first beneficiary will first depart the funds to the second beneficiary and then send documents to the issuing bank/confirming bank for further collection/receipt of funds.
Regards,
Manish Jain

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ANSWER FROM NGUYEN HUU DUC
Transferring bank's payment obligation

Hi,

Under a transferred L/C, the transferring bank normally undertakes to pay the second beneficiary only after receipt of the issuing bank’s payment under the transferable L/C.

Best regards,
Nguyen Huu Duc. …

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2 Comments

  1. anonymous

    June 20, 2011 at 2:06 pm

    Nhu writes:Dear Mr Old Man, Pls give me your advices in this case:Could the first ben. substitude documennts (other than the invoice and draft), such as: bill of lading of the second ben. Our customer will import the goods from campuchia and export them to singapore, the goods will be delivered to vietnam port and transfered to singapore port, so there will be two diffence bill of lading.thanks for your help.

    Reply

  2. mroldmanvcb

    June 20, 2011 at 10:06 pm

    It seems that there are two separate transactions. You import the goods from one country and then re-export to another country. There are two L/C in this transaction, so there will be two bills of lading.Why don't you ask for a transferable LC for shipment from Cambodian port to Singapore port. No need to substitute the bill of lading!

    Reply

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