Trade and Supply Chain View

The legal framework for assigning proceeds under a documentary credit is primarily governed by national law. This allows a beneficiary (the "assignor") to instruct the nominated or issuing bank to pay a portion of the credit proceeds directly to a third party (the "assignee"). Procedure: Irrevocable Instruction: The assignor provides the bank with irrevocable instructions on how to make the payment to the assignee. Acknowledgment: The bank acknowledges the instruction by issuing a letter to the assignee. This "acknowledgment of an assignment of proceeds" informs the assignee about the arrangement. Disclaimer of Liability: The bank explicitly disclaims any payment or guarantee obligations towards the assignee. The bank acts solely as an agent for the assignor, facilitating the payment of the received funds. Key Considerations: The Bank Having Unrestricted Access to the Proceeds: Limited Security for the Assignee: Unlike being the direct beneficiar...

Back-to-back letters of credit offer an alternative to transferable credits when the terms of a trade deal between the ultimate buyer and final supplier differ significantly. Unlike transferable credits, which operate under a single letter of credit, back-to-back credits involve two separate and distinct letters of credit. How it Works: Two Separate Credits: An intermediary, acting as both buyer and seller, obtains two letters of credit: Credit A: Issued by the bank at the request of the ultimate buyer in favor of the beneficiary- "intermediary". Credit B: Issued by the intermediary's bank at the request of the intermediary in favor of the ultimate beneficiary-"supplier". Security Mechanism: Credit A serves as security for the issuance of Credit B. This ensures the intermediary's bank has the funds to fulfill its obligations under Credit B. Document Alignment: The intermediary's bank and the intermediary must carefully structure Credit B...