Assignment of proceeds,
Definition of Assignment of proceeds:
Irrevocable assignment, by the beneficiary of a letter of credit, of a portion of its proceeds to a third party (usually the manufacturer of the exported goods). This assignment generally takes the form of a deed of assignment.
An assignment of proceeds occurs when a beneficiary transfers all or part of the proceeds from a letter of credit to a third party beneficiary. Assigning the proceeds from a letter of credit can be utilized in many types of scenarios, such as to pay suppliers or vendors in a business transaction or to settle other debts.
A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. The original beneficiary, the named party who is entitled to receive the proceeds from a letter of credit, may choose to have them delivered to a third party instead through an "assignment of proceeds.".
How to use Assignment of proceeds in a sentence?
- A benefit of this type of transaction is the ability to redirect only a portion of the proceeds, in which case both the original beneficiary and third party can access the same letter of credit.
- A drawback of this type of transaction is that the original beneficiary is still responsible for fulfilling all requirements under the letter of credit, even when the funds are redirected to the third party.
- An assignment of proceeds must be approved by the financial institution following a request and fulfillment of any obligations by the original beneficiary.
- An assignment of proceeds can be used to redirect funds from a line of credit to a third party.
Meaning of Assignment of proceeds & Assignment of proceeds Definition