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:
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.