Assignment under Documentary Credits


A common form of assignment is when a beneficiary uses it as a means to pay a supplier of goods shipped, or services or performance provided, to an applicant, from the proceeds due to that beneficiary under a documentary credit.

Definition of assignment of proceeds: "An instruction, usually irrevocable, given by the beneficiary of a documentary credit or standby letter of credit authorising the payment of all or part of the proceeds due to it to a third party."

There is limited information in UCP 600 article 39 as to how a notice of assignment should be handled. It should be noted that an assignment of proceeds is subject to the provisions of the applicable law, and such law would be that of the assignor and the bank that is being asked to accept, acknowledge and act on the instructions contained therein.

Although not widely used, an assignment of proceeds is a means of settling a debt or ensuring that payment is made to the correct or appropriate entity under a documentary credit or standby letter of credit.

An assignment of proceeds can occur in a number of circumstances, including: 

  • between banks. For example, a nominated bank accepts a draft drawn on it and discounts the proceeds, and then looks to 'sell' the asset on the secondary market. The purchaser wants to be sure that the funds will be remitted to it on the due date and requires that the nominated bank assign the proceeds to them and inform the issuing bank accordingly. The issuing bank will be instructed, through the notice of assignment, that on the maturity date it is to remit the proceeds to the purchasing bank and not the nominated bank;
  • beneficiary to a Bank or forfaiter. For example, a beneficiary has received an accepted draft or deferred payment undertaking and requests that another bank discount it. The bank is only willing to do so if the beneficiary provides an assignment of proceeds to the nominated bank or issuing bank for funds to be remitted to the discounting bank on the due date. Once the nominated bank or issuing bank acknowledges the assignment instruction, the bank or forfaiter will go ahead and discount;
  • when a beneficiary of a documentary credit is not the supplier of some or all of the goods being shipped and funds are to be paid to the supplier, and a documentary credit or one that is stated to be transferable is not possible or appropriate for the supplier; or
  • when a beneficiary of a documentary credit is unable to pay for the freight cost to a carrier or owner (e.g., charter party transactions) in advance of payment under thedocumentary credit and assigns part of the proceeds to cover those costs.

In the above example, an agreement is reached between Laptop Co. Ltd and Worldwide Agents Ltd that an assignment of proceeds will be put in place to facilitate payment to Laptop Co. Ltd for goods that they will hand over to Worldwide Agents Ltd for shipment to Useful Computers Ltd (1). Laptop Co. Ltd may not be aware of the final buyer of its goods.

Worldwide Agents Ltd inform the nominated confirming bank, Transit Bank Ltd, of the assignment of proceeds and request that it take note of the instruction to make a certain payment to Laptop Co. Ltd once complying documents have been presented and honour or negotiation has occurred. (2)

Transit Bank Ltd acknowledge receipt of the notice of assignment to both Worldwide Agents Ltd and Laptop Co. Ltd (3)

Worldwide Agents Ltd then arrange the shipment of the goods to Useful Computers Ltd. (4) They will then proceed to present the required documents under the credit and, if in compliance with the terms and conditions of the credit, Transit Bank Ltd will honour or negotiate and effect settlement according to the conditions stated in the notice of assignment.


More detailed information on how to handle assignments at each stage of a documentary credit can be found in the ‘Assignment of Proceeds' module of our ‘Documentary Credits' training.

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