Assignment under documentary credit refers to the process in international trade finance where the rights and obligations of a documentary credit are transferred from the original beneficiary (seller) to a third party, known as the assignee. A documentary credit, also known as a letter of credit or LC, is a widely used payment method that provides security to both the buyer and seller in an international transaction.
In this context, assignment allows the beneficiary to transfer their rights to receive payment under the credit to another party. The assignment can be partial or total, and the benefit may or may not be disclosed to the buyer. The assignee, upon receiving the assigned rights, becomes entitled to payment under the documentary credit.
Several conditions must be met for a valid assignment under documentary credit. These include obtaining the issuer's consent, having the assignment properly documented, and adhering to any specific requirements outlined in the credit. The assignment must also be communicated to all relevant parties, including the buyer, the issuing bank, and the confirming bank (if applicable).
By assigning their rights, the original beneficiary can effectively finance their exports by selling the credit's proceeds to a financial institution or another party. This allows the beneficiary to receive payment earlier and mitigate risks associated with the buyer's creditworthiness or collection issues.
In summary, an assignment under documentary credit enables the transfer of rights and obligations from the original beneficiary to a third party, facilitating financing and providing security to exporters in international trade transactions.
