These are the options you have to arrange security for your subcontractors or other parties, via the documentary credit:
Irrevocable payment order
Like an assignment, an irrevocable payment order ensures a third party that money will not be paid to the beneficiary under the documentary credit before the third party has received the amount due to him with respect to the payment order.
It is, however, important to be aware that payment orders are not subject to 'Gældsbrevsloven' (Danish Act on Instruments of Debt). This means that an amount will be payable only after a court decision or arbitration in the event that the beneficiary should go bankrupt or suspend payments.
You can find an application for payment order under Forms.
Assignment
It is possible to offer a third party, for example your sub-contractor, assignment of proceeds from the documentary credit.
Assignment ensures the assignee (the subcontractor) that money will not be paid out to the beneficiary under the documentary credit until the assignee has received the amount due to him with respect to the assignment.
The assignment is subject to 'Gældsbrevsloven' (Danish Act on Instruments of Debt), which means that in the event that the beneficiary should go bankrupt or suspend payments, an estate must respect the assignment if it is legally recorded and the debtor is notified.
You can find an application for registration of assignment under Forms.
Transferable documentary credit
If the documentary credit is issued as a transferable documentary credit, the beneficiary can request the bank authorised to make the transfer (often the advising bank) to transfer the documentary credit, completely or in part, to a subcontractor through his bank.
In practice this means that the original documentary credit is sent on (transferred) to the subcontractor with unchanged conditions - although the following conditions can be changed:
- the amount and any unit price can be reduced
- validity, shipment and presentation limits can be shortened
- any insurance percentage rate can be raised
When the documents are presented under a transfer, it is possible for the beneficiary to replace the invoices and any drafts with his own. If the terms of the documentary credit are met, the beneficiary will get the difference between the two invoices (maybe less the bank's commission), while the balance is paid to the subcontractor.
One risk with transfer is that the beneficiary is forced to use the other documents presented by his subcontractor. Any mistakes in these documents might be repeated under the original documentary credit; in this way part of the security in doing business with documentary credits can disappear.
You can find an application for transfer under Forms.