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You can reduce the risk of non-payment by having a DC transferred to you.

Features and benefits

  • Reduces the risk of non-payment by having a bank payment obligation transferred to you
  • Gives you assurance of a confirmed order and peace of mind if you are uncertain of the financial standing of your customer
  • Enables the recipient to secure financing in some countries where a Documentary Credit is required

Reduces the risk of non-payment by having a bank payment obligation transferred to you

Gives you assurance of a confirmed order and peace of mind if you are uncertain of the financial standing of your customer

Enables the recipient to secure financing in some countries where a Documentary Credit is required

How it works

If your customer is a middleman, trading house or sourcing office, you might receive a Transferred DC as the payment method. The ultimate buyer issues a Transferable DC to your customer who then transfers all or part of the DC to you to source the goods and effect payment. You are paid when the ultimate buyer pays your customer and, from the proceeds, your share of the payment is credited to you.

Potential risks

  • Since you do not have ultimate control over the presentation of compliant documents under the Transferable DC, your customer could mishandle the documents and put the payment at risk.
  • Your customer may not transfer subsequent amendments of the original DC to you. This could put you in a position whereby you cannot fulfil the requirements of the Transferable DC.

The level of risk depends on the terms of the Transferable DC and the terms of the transfer. If you have any concerns, please contact us.

Guide to Transferring Documentary Credits

First beneficiary - also known as the transferor, the first beneficiary is often the intermediary party or middleman in a trade transaction. They are the beneficiary of the original DC and will transfer the DC on to the ultimate supplier.

Second beneficiary - also known as the transferee, the second beneficiary is the supplier. There can be several second beneficiaries as the middleman can divide the credits and transfer to various parties provided partial shipment is allowed.

Transferring bank - the bank that transfers the DC for the first beneficiary. A bank has to be specifically authorised in the DC to be a transferring bank.

Full transfer - sometimes known as transfer in its entirety, which means that the whole DC amount is transferred to a single second beneficiary.

Partial transfer - in this case only part of the DC value is available to the second beneficiary (or beneficiaries).

Example Sam's Store buys widgets from Joe's Trading. Joe doesn't make the widgets himself but buys them from Happy Widget Factory. The payment for this business transaction is by way of a Transferable Documentary Credit (DC) for HKD100,000 issued for Sam's Store to Joe's Trading (first beneficiary/transferor). Joe then asks HSBC (transferring bank) to transfer the DC to Happy Widget Factory (second beneficiary/transferee) for the amount of HKD70,000 (partial transfer) and keeps the balance of HKD30,000 to cover his expenses and profit.

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