Can a transferable letter of credit be transferred more than once?

Not onward. Under UCP 600 a transferred credit cannot be transferred again at the request of a second beneficiary to a further beneficiary. It can be transferred in parts to more than one second beneficiary if partial drawings or shipments are allowed, and a transfer back to the first beneficiary does not count as a further transfer. A trader buying from three suppliers can split one credit three ways, but none of them can pass its part on.

Who pays the charges for transferring a letter of credit?

The first beneficiary, normally the trader, unless something else is agreed at the time of transfer. That is the default under UCP 600. Any other arrangement has to be agreed with the bank when the transfer is made. A sale contract that puts the charges on the buyer gives the trader a claim on its buyer, not a different payer at the bank, so the charges are worth building into the trader's price along with a second set of document checks.

Will the supplier learn who the end buyer is?

Not necessarily. UCP 600 lets the trader's name replace the buyer's as applicant in the transferred credit, so the supplier may see only the trader. The exception is a credit that requires the applicant's name to appear in documents other than the invoice: that requirement must be carried into the transferred credit. In the other direction, substitution keeps the supplier's price from the buyer, unless the trader fails to substitute in time.

What happens if the first beneficiary does not substitute its invoice?

If the trader does not supply its own invoice and draft on first demand, or supplies an invoice that creates discrepancies the supplier's presentation did not have and fails to correct them on first demand, the transferring bank may present the supplier's documents to the issuing bank as received, with no further liability to the trader. The buyer's bank then pays the supplier's invoice amount, and the trader's margin is no longer payable under the credit.

// WORKED EXAMPLETHE ARITHMETIC A DECISION RESTS ON

Transferable Letter of Credit: a Worked Example

One credit, two beneficiaries, and a margin kept by swapping invoices.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-07

// THE SHORT ANSWER

A transferable letter of credit is how a trader without a credit line of its own can buy from a supplier on the strength of its buyer's bank. Instead of the trader's bank issuing a new credit, part of the buyer's credit is passed on to the supplier, who ships and presents under it. The trader then puts its own invoice in place of the supplier's and collects the difference. Because no bank lends to the trader, its bank carries little risk. What the trader carries is operational: miss the timetable, and its margin may not be paid under the credit at all.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// MAKE THE CALL

Issue 02 — Aoraki Trade Exports. Paid in USD, costs in NZD, asking for a NZ$6m multi-currency facility. The MD won't say which currencies. Your call first, then the senior banker's.

Read the file →

// 01 — WHY A TRADER ASKS FOR ONE

A trader sits between a buyer and a supplier and earns the difference in price. Its problem is the order of payments: the supplier wants security before it ships, the buyer pays only once the goods are on their way, and the trader may have no line large enough to bridge the two. If the buyer will open a letter of credit that its bank marks transferable, the trader can hand most of it to the supplier. The supplier gets a bank's undertaking, the buyer's bank pays once, and the trader's own balance sheet carries very little.

The buyer has to agree, because the word must be in the credit from the start: under UCP 600, the ICC's rules for documentary credits, a credit can be transferred only if it states that it is transferable. Even then no bank is bound to transfer it beyond what it has expressly consented to. A trader that has sold on the expectation of a transfer needs both answers before it signs with its supplier.

// 02 — WHAT A TRANSFER MAY CHANGE

Article 38 of UCP 600 sets the rules. The transferred credit repeats the original's terms, with a short list of exceptions:

May be reduced amount, unit price

May be brought forward expiry, latest shipment

May be shortened presentation period

May be increased insurance cover, as a percentage, so that it

still equals what the original credit requires

May be substituted the trader's name for the buyer's as applicant

May not happen a further transfer at the supplier's request

The trader's margin is taken by substitution. When the supplier presents to the transferring bank, the trader may replace the supplier's invoice and draft with its own, up to the original credit's amount, and draw the difference. If it does not do so on first demand, or its invoice adds discrepancies the supplier's presentation did not have and it does not correct them on first demand, the transferring bank may forward the supplier's documents to the issuing bank as received, with no further liability to the trader. Unless agreed otherwise when the transfer is made, the trader pays the transfer charges.

// 03 — THE EXAMPLE

A seafood trader, constructed for this page like every figure in it, sells tinned fish to an importer for US$900,000 CIF, under a transferable credit that calls for insurance at 110% of the invoice value. It buys from a cannery for US$780,000 on the same CIF terms. The credit is transferred to the cannery for US$780,000, with the latest shipment and expiry brought forward a week and the presentation period shortened.

Cover the original credit requires 900,000 × 110% = 990,000

As a share of the transferred amount 990,000 ÷ 780,000 = 126.9%

Transferred credit calls for cover of at least 127%

Cannery's invoice, transferred credit 780,000

Trader's substituted invoice 900,000

Difference drawn by the trader 120,000

The insurance line is the one that catches people. Had the transferred credit simply repeated 110%, the cannery's policy would have covered US$858,000, and the documents presented under the original credit would have fallen short of the US$990,000 the importer's bank requires. The rules let the percentage rise for exactly that reason.

The substitution is the other. Change one fact: the cannery presents on day eight after shipment, and the trader, short-staffed, sends its invoice four days after the bank's demand. The bank may now forward the cannery's documents unaltered. The importer's bank pays US$780,000 for the cannery's account, the trader's US$120,000 is not drawn under the credit, and the importer has seen its supplier's name and price. Whatever the trader is still owed, it must now claim under the sale contract, outside the protection of the credit.

// 04 — HOW IT DIFFERS FROM BACK-TO-BACK AND ASSIGNMENT

A back-to-back letter of credit creates a second credit on the trader's bank's own undertaking. It can differ from the first, and the bank must honour it even if the trader goes unpaid under the master. A transfer creates no new undertaking: the supplier is paid under the original credit, by the issuing bank or a nominated or confirming bank. That is why a bank may transfer a credit for a trader to which it would not issue a back-to-back.

An assignment of proceeds is narrower again. UCP 600 article 39 preserves a beneficiary's right, under the applicable law, to assign what it is paid under a credit, transferable or not. The supplier then holds an assignment of money the trader may become entitled to, usually made effective by notice to the paying bank and its acknowledgement, but no right to present documents itself. It is paid only if the trader presents complying documents.

DEFINED IN ONE PARAGRAPH → · BACK-TO-BACK CREDITS → · INCOTERMS →

// 05 — WHERE IT DECIDES A FILE

For the trader's bank, a transfer is mainly an operational task. No limit is used unless the bank confirms or finances, and its fee pays for checking documents twice and keeping the substitution timetable. The risk to watch sits with the trader and shows in the margin: a trader whose profit rests on substitution needs people who can produce a complying invoice and draft inside the presentation period the transfer left.

For a lender to the trader, the transferable credit changes what the trader's receivable is. The margin is not owed by any bank until the trader's own documents comply. A lender that counts expected margins in a borrowing base can read them as contingent on substitution, and the sale contract tells it whether a missed substitution leaves the trader with a claim on its buyer worth pursuing.

HOW BANKS READ EXPORTERS → · THE DISCREPANCY, DEFINED →

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

International Chamber of Commerce, Uniform Customs and Practice for Documentary Credits, UCP 600 (2007 revision) — articles 28(f)(ii), 38 and 39 — Article 38 sets when a credit may be transferred, the terms a transfer may reduce, curtail or increase, the bar on re-transfer at a second beneficiary's request (38(d)), substitution of invoice and draft and the transferring bank's right to forward the second beneficiary's documents; article 39 covers assignment of proceeds; article 28(f) sets 110% as the default minimum insurance cover — sections 02, 03 and 04.

// QUESTIONS PEOPLE ASK

Can a transferable letter of credit be transferred more than once?: Not onward. Under UCP 600 a transferred credit cannot be transferred again at the request of a second beneficiary to a further beneficiary. It can be transferred in parts to more than one second beneficiary if partial drawings or shipments are allowed, and a transfer back to the first beneficiary does not count as a further transfer. A trader buying from three suppliers can split one credit three ways, but none of them can pass its part on.
Who pays the charges for transferring a letter of credit?: The first beneficiary, normally the trader, unless something else is agreed at the time of transfer. That is the default under UCP 600. Any other arrangement has to be agreed with the bank when the transfer is made. A sale contract that puts the charges on the buyer gives the trader a claim on its buyer, not a different payer at the bank, so the charges are worth building into the trader's price along with a second set of document checks.
Will the supplier learn who the end buyer is?: Not necessarily. UCP 600 lets the trader's name replace the buyer's as applicant in the transferred credit, so the supplier may see only the trader. The exception is a credit that requires the applicant's name to appear in documents other than the invoice: that requirement must be carried into the transferred credit. In the other direction, substitution keeps the supplier's price from the buyer, unless the trader fails to substitute in time.
What happens if the first beneficiary does not substitute its invoice?: If the trader does not supply its own invoice and draft on first demand, or supplies an invoice that creates discrepancies the supplier's presentation did not have and fails to correct them on first demand, the transferring bank may present the supplier's documents to the issuing bank as received, with no further liability to the trader. The buyer's bank then pays the supplier's invoice amount, and the trader's margin is no longer payable under the credit.

THE IN-TRAY · ONE MINUTE

Make the call on one file.

A short file on the ground this page covers. Every option opens with how far it sits from a senior banker’s read.

THE FIRST QUESTION · THE ECONOMY · CURRENCY AND TRADE

An exporter sells a commodity priced in US dollars and pays its costs in its home currency. The home currency has strengthened 20% against the dollar.

What happens to its margin?

5 MORE ON THE ECONOMY · CURRENCY AND TRADE →WHERE DO YOU READ FROM? THE PLACEMENT →

THE GLOSSARYIN ONE PARAGRAPHTransferable letter of credit What is a transferable letter of credit, and why do traders use one?