Transferable versus non-transferable letter of credit

by Tekle Sebhatu

Question:

What is the exact professional difference between transferable LC vs. non transferable LC? As a buyer we face to sellers who give us a price for transferable LC and increase the price 2% for non transferable LC. What are the reasons and results? Thanks.

Answer:

Dear, Ehsan: A transferable letter of credit is a type of a letter of credit under which a beneficiary (exporter or seller) has the right to give instruction to the paying or accepting bank to make the credit (funds) available to one or more third parties, sometimes referred as secondary beneficiaries. A non-transferable letter of credit is when the bank makes credit available to the beneficiary only and cannot be transferred to any other party. As to why your seller is increasing by 2% for non transferable letter of credit is something that you have to specifically ask the seller why there is that additional 2%. One possible reason could be that the seller is passing fees that he is charged by his bank .