Transferable Letter of Credit: Rules and Practical Example
How a transferable Letter of Credit lets an intermediary pass the credit to its supplier, under UCP 600 Article 38.
Reviewed by LCCheck team (owner-approved) · 2026-10-12
Short answer
A transferable Letter of Credit lets the first beneficiary — often a trader — ask a bank to make the credit available to a second beneficiary, usually the actual supplier. It must be expressly designated 'transferable' (UCP 600 Art. 38(b)). The amount, unit price, expiry, presentation period and latest shipment date may be reduced, and the trader may substitute its own invoice.
| Rule | UCP 600 Art. 38 |
|---|---|
| Must state | 'Transferable' |
| Default | Transferable only once, unless otherwise stated |
| Trader can substitute | Invoice and draft (Art. 38(h)) |
What can change on transfer
- Amount and unit price reduced.
- Expiry, presentation period, latest shipment shortened.
- Insurance percentage increased.
- Applicant's name replaced by the first beneficiary's.
Risks
- Second beneficiary sees end-buyer terms unless documents are substituted carefully.
- Timing: trader must substitute invoices quickly.
- Transferring bank is not obliged to transfer unless it agreed.
Worked example (fictional)
A trader holds a credit for USD 120,000 from a buyer and transfers USD 100,000 to its supplier. The supplier ships and presents; the trader substitutes its USD 120,000 invoice and receives the USD 20,000 difference.
Sources
General guidance, not legal advice. Your bank examines documents independently.
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