In international trade, sometimes the beneficiary of a Letter of Credit (LC) may wish to receive financing or settle obligations by assigning their right to receive payment under the LC to another party — such as a supplier, financier, or creditor.
👉 Article 39 of UCP 600 governs such assignments of proceeds, clarifying that this does not mean transferring the LC itself (as in a transferable LC), but merely transferring the right to the money when it becomes payable.
This distinction is crucial — it separates who can receive the funds from who controls the credit.
📖 What Does Article 39 of UCP 600 Say?
1️⃣ Assignment of Proceeds ≠ Transfer of Credit
- An LC may allow a beneficiary to assign its proceeds (payment) to another party.
- This does not mean the assignee becomes a new beneficiary of the credit.
- The right to present documents and comply with the LC remains with the original beneficiary.
In simple terms:
The payment can be assigned, but the LC itself cannot be transferred unless it’s explicitly “transferable” under Article 38.
2️⃣ When Can Proceeds Be Assigned?
- Once an LC has been issued, the beneficiary may assign the proceeds to another person or entity — typically for financing or settlement purposes.
- The assigning bank (usually the issuing or advising bank) can assist by noting the assignment.
- However, such assignment is subject to the applicable law, not automatically governed by UCP itself.
3️⃣ Bank’s Role and Limitation
- Banks are not obliged to recognize or honor an assignment unless they have expressly consented or acknowledged it.
- Even when acknowledged, banks’ responsibilities are limited:
✔ They pay proceeds to the assignee only when the beneficiary fully complies with the LC terms.
✔ They have no obligation to monitor whether the assignment is valid under local law.
4️⃣ Effect of Assignment
- The assignee (e.g., a finance company) only receives payment — not the right to control the LC or present documents.
- The original beneficiary must still:
✔ Ship the goods or fulfill the LC terms.
✔ Present compliant documents to trigger payment. - Only then will the bank release proceeds — to the assignee if an assignment exists.
5️⃣ Governing Law
Assignments are often governed by local commercial or contract law, not UCP 600 directly.
UCP merely acknowledges the possibility of assignment and defines the limits of a bank’s involvement.
🔎 Breaking Down Article 39
💡 The Key Distinction
Transferable Credit (Article 38):
Transfers the LC itself — meaning the second beneficiary can present documents and receive payment.
Assignment of Proceeds (Article 39):
Transfers only the right to receive payment — beneficiary still presents documents and controls compliance.
| Feature | Transferable LC (Art. 38) | Assignment of Proceeds (Art. 39) |
| Who can request? | First beneficiary | Beneficiary |
| Who presents documents? | Second beneficiary | Original beneficiary |
| What is transferred? | LC itself | Only payment right |
| Bank involvement | Must authorize transfer | May acknowledge only |
| Frequency | Once only | Can assign multiple times (if law allows) |
💼 Why Assignment Happens
Assignments are common when the beneficiary:
- Needs working capital before receiving payment.
- Wants to secure a loan using the LC proceeds.
- Needs to pay suppliers or subcontractors directly through the bank.
For example:
A trader receives an LC for $100,000.
He assigns $80,000 of proceeds to his supplier to ensure the supplier is paid directly after shipment.
Once documents are compliant, the bank pays $80,000 to the supplier and $20,000 to the trader.
🏦 Bank’s Role and Responsibilities
Issuing Bank:
✔ Obliged to pay proceeds only to the beneficiary or assignee after compliance.
✔ Not responsible for verifying the legality of the assignment.
Advising Bank / Nominated Bank:
✔ May assist by acknowledging the assignment.
✔ Not required to guarantee payment to assignee unless expressly confirmed.
Confirming Bank (if any):
✔ Will pay proceeds as per its confirmation, but still only after compliance with LC terms.
👩💼 Exporter’s (Beneficiary’s) Responsibility
✔ Ensure documents are compliant before expecting payment to be released to the assignee.
✔ Understand that assigning proceeds does not mean assigning risk — if documents are rejected, the assignee gets nothing.
✔ Communicate clearly with both the assignee and the bank about the arrangement.
🌍 Practical Trade Example
Scenario: Assignment of LC Proceeds to Supplier
A Bangladeshi garment trader (beneficiary) receives an LC from a UK buyer for $500,000.
He subcontracts a factory to produce the garments and assigns $400,000 of the LC proceeds to that factory.
The LC remains in the trader’s name, and the trader submits documents after shipment.
✅ If documents comply:
- Bank pays $400,000 to the factory (assignee).
- Remaining $100,000 goes to the trader.
❌ If documents are non-compliant:
- No payment is made to either party.
- The assignment gives no independent right to claim payment.
✅ Why Article 39 Matters
- Distinguishes clearly between transfer and assignment of credit.
- Protects banks from being forced to honor assignments they did not authorize.
- Facilitates trade finance by allowing beneficiaries to raise funds using LC proceeds.
- Provides flexibility to beneficiaries while maintaining documentary control.
✍️ Final Thoughts
Article 39 of UCP 600 is the final article and serves as a logical conclusion to the UCP framework — emphasizing the documentary nature of LCs and defining how payment rights can be assigned without transferring credit control.
It provides a practical tool for trade financing and risk sharing but also limits banks’ obligations to prevent misuse.