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Assignment of Proceeds: Meaning, Pros and Cons, Example

Diane Costagliola is a researcher, librarian, instructor, and writer who has published articles on personal finance, home buying, and foreclosure.

Investopedia / Jiaqi Zhou

What Is an Assignment of Proceeds?

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.

Key Takeaways

• An assignment of proceeds can be used to redirect funds from a line of credit to a third party.
• An assignment of proceeds must be approved by the financial institution that granted the line of credit following a request and fulfillment of any obligations by the original beneficiary.
• 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.
• This type of transaction is used in a number of circumstances, such as when paying suppliers or vendors, or when settling outstanding debts.

Understanding an Assignment of Proceeds

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."

Due to the nature of international dealings, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade.

In order to process an assignment of proceeds, the original beneficiary of the letter of credit must submit a request to the bank or other financial institution issuing the letter of credit requesting to assign the funds to a different individual or company. The assignment of proceeds will need to be approved by the financial institution once it is submitted, pending the fulfillment of any requirements set forth in the letter of credit.

If the original beneficiary does not meet the obligations outlined in the letter of credit, no assignment will take place. Once approved, the bank or other entity will release the money to the specified third party to be drawn upon at will.

Advantages and Disadvantages of an Assignment of Proceeds

The main benefit of an assignment of proceeds is that the original beneficiary has the ability to assign all or just a portion of the letter of credit to the third party. The original beneficiary will retain access to any portion of the proceeds not redirected to the third party. This allows both entities to make use of the same letter of credit when necessary.

This benefit must be weighed against the potential drawback of this type of transaction. When an assignment of proceeds takes place, the financial institution is not contracting directly with the third-party beneficiary. It is only acting as an agent in supplying the funds to the third party. The original beneficiary is still responsible for completing any and all requirements under the letter of credit.

Example of an Assignment of Proceeds

Assume XYZ Customer, in Brazil, is purchasing widgets from ABC Manufacturer, in the United States. In order to sign off on the deal, ABC Manufacturer requires that XYZ Customer obtains a letter of credit from a bank to mitigate the risk that XYZ may not pay ABC for the widgets once ABC has shipped them out of the country.

At this point, ABC Manufacturer is able to request that a portion of these funds be redirected to DEF Supplier, whom ABC still owes money for parts used in making the widgets. Even though a portion of the funds has been redirected to DEF Supplier, ABC Manufacturer still has to fulfill its obligations under the letter of credit, such as shipping out the widgets to XYZ.

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Home Business Assignment Agreement

Assignment Agreement Template

Use our assignment agreement to transfer contractual obligations.

Updated February 1, 2024 Reviewed by Brooke Davis

An assignment agreement is a legal document that transfers rights, responsibilities, and benefits from one party (the “assignor”) to another (the “assignee”). You can use it to reassign debt, real estate, intellectual property, leases, insurance policies, and government contracts.

What Is an Assignment Agreement?

What to include in an assignment agreement, how to assign a contract, how to write an assignment agreement, assignment agreement sample.

Partnership Interest

An assignment agreement effectively transfers the rights and obligations of a person or entity under an initial contract to another. The original party is the assignor, and the assignee takes on the contract’s duties and benefits.

It’s often a requirement to let the other party in the original deal know the contract is being transferred. It’s essential to create this form thoughtfully, as a poorly written assignment agreement may leave the assignor obligated to certain aspects of the deal.

The most common use of an assignment agreement occurs when the assignor no longer can or wants to continue with a contract. Instead of leaving the initial party or breaking the agreement, the assignor can transfer the contract to another individual or entity.

For example, imagine a small residential trash collection service plans to close its operations. Before it closes, the business brokers a deal to send its accounts to a curbside pickup company providing similar services. After notifying account holders, the latter company continues the service while receiving payment.

Create a thorough assignment agreement by including the following information:

• Effective Date:  The document must indicate when the transfer of rights and obligations occurs.
• Parties:  Include the full name and address of the assignor, assignee, and obligor (if required).
• Assignment:  Provide details that identify the original contract being assigned.
• Third-Party Approval: If the initial contract requires the approval of the obligor, note the date the approval was received.
• Signatures:  Both parties must sign and date the printed assignment contract template once completed. If a notary is required, wait until you are in the presence of the official and present identification before signing. Failure to do so may result in having to redo the assignment contract.

Review the Contract Terms

Carefully review the terms of the existing contract. Some contracts may have specific provisions regarding assignment. Check for any restrictions or requirements related to assigning the contract.

Check for Anti-Assignment Clauses

Some contracts include anti-assignment clauses that prohibit or restrict the ability to assign the contract without the consent of the other party. If there’s such a clause, you may need the consent of the original parties to proceed.

Determine Assignability

Ensure that the contract is assignable. Some contracts, especially those involving personal services or unique skills, may not be assignable without the other party’s agreement.

Get Consent from the Other Party (if Required)

If the contract includes an anti-assignment clause or requires consent for assignment, seek written consent from the other party. This can often be done through a formal amendment to the contract.

Prepare an Assignment Agreement

Draft an assignment agreement that clearly outlines the transfer of rights and obligations from the assignor (the party assigning the contract) to the assignee (the party receiving the assignment). Include details such as the names of the parties, the effective date of the assignment, and the specific rights and obligations being transferred.

Include Original Contract Information

Attach a copy of the original contract or reference its key terms in the assignment agreement. This helps in clearly identifying the contract being assigned.

Execution of the Assignment Agreement

Both the assignor and assignee should sign the assignment agreement. Signatures should be notarized if required by the contract or local laws.

Notice to the Other Party

Provide notice of the assignment to the non-assigning party. This can be done formally through a letter or as specified in the contract.

File the Assignment

File the assignment agreement with the appropriate parties or entities as required. This may include filing with the original contracting party or relevant government authorities.

Communicate with Third Parties

Inform any relevant third parties, such as suppliers, customers, or service providers, about the assignment to ensure a smooth transition.

Keep Copies for Records

Keep copies of the assignment agreement, original contract, and any related communications for your records.

Here’s a list of steps on how to write an assignment agreement:

Step 1 – List the Assignor’s and Assignee’s Details

List all of the pertinent information regarding the parties involved in the transfer. This information includes their full names, addresses, phone numbers, and other relevant contact information.

This step clarifies who’s transferring the initial contract and who will take on its responsibilities.

Step 2 – Provide Original Contract Information

Describing and identifying the contract that is effectively being reassigned is essential. This step avoids any confusion after the transfer has been completed.

Step 3 – State the Consideration

Provide accurate information regarding the amount the assignee pays to assume the contract. This figure should include taxes and any relevant peripheral expenses. If the assignee will pay the consideration over a period, indicate the method and installments.

Step 4 – Provide Any Terms and Conditions

The terms and conditions of any agreement are crucial to a smooth transaction. You must cover issues such as dispute resolution, governing law, obligor approval, and any relevant clauses.

Step 5 – Obtain Signatures

Both parties must sign the agreement to ensure it is legally binding and that they have read and understood the contract. If a notary is required, wait to sign off in their presence.

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Letter of Credit: Maximizing Security with Assignment of Proceeds

1. introduction to letter of credit, 2. understanding assignment of proceeds, 3. benefits of assignment of proceeds, 4. how assignment of proceeds works, 5. parties involved in assignment of proceeds, 6. types of assignment of proceeds, 7. risks and challenges in assignment of proceeds, 8. case studies on assignment of proceeds, 9. conclusion and key takeaways.

When it comes to international trade, it is essential to have a safe and secure payment method that protects the interests of both the buyer and the seller. One such method is the Letter of Credit. A Letter of Credit, also known as a documentary credit, is an agreement between the buyer's bank, the seller's bank, and the buyer and seller themselves. This agreement ensures that the seller will receive payment for the goods or services they provide, while the buyer is guaranteed that the goods or services they receive will meet their specifications.

Here are some key points to understand about Letters of Credit:

1. The buyer's bank issues the Letter of Credit on behalf of the buyer. This document guarantees that payment will be made to the seller as long as they meet the terms and conditions of the agreement . The seller's bank acts as an intermediary between the seller and the buyer's bank, verifying that the terms of the agreement have been met before releasing payment to the seller.

2. Letters of Credit can be either revocable or irrevocable. A revocable Letter of Credit can be changed or cancelled by the buyer's bank at any time without the seller's consent. An irrevocable Letter of Credit, on the other hand, cannot be changed or cancelled without the agreement of all parties involved.

3. Letters of Credit can also be confirmed or unconfirmed. A confirmed Letter of Credit means that the seller's bank has received confirmation from the buyer's bank that payment will be made. This provides an extra layer of security for the seller, as they know they will receive payment even if the buyer's bank is unable to make the payment. An unconfirmed Letter of Credit means that the seller's bank has not received confirmation from the buyer's bank, and the seller is relying solely on the buyer's ability to make payment.

4. One way to ensure that the seller receives payment is through the Assignment of proceeds . This means that the buyer's bank agrees to pay the seller's bank directly, rather than paying the buyer first. This provides an additional layer of security for the seller, as they know that the funds are available before they ship the goods or provide the services.

The Letter of Credit is an essential tool for international trade , providing security and peace of mind for both buyers and sellers . Understanding the different types of Letters of Credit and the Assignment of Proceeds can help ensure a smooth transaction for all parties involved.

Introduction to Letter of Credit - Letter of Credit: Maximizing Security with Assignment of Proceeds

Understanding Assignment of Proceeds is a crucial aspect of a letter of credit transaction. It is a security measure that ensures payment to the beneficiary by assigning the proceeds to a third party. The assignment of proceeds is a document that instructs the bank to pay the proceeds of a letter of credit to a third party. The third party can be the seller's bank, a factor, or a financing institution. The purpose of the assignment is to protect the beneficiary from non-payment or default by the issuing bank or the buyer. The assignment of proceeds is also used to finance the transaction and improve cash flow .

Here are some important things to know about the Assignment of Proceeds:

1. The beneficiary requests the assignment of proceeds from the issuing bank. The issuing bank will then send an advice of assignment to the nominated bank, which is the bank of the beneficiary.

2. The nominated bank will acknowledge receipt of the advice of assignment and confirm the assignment of proceeds to the third party.

3. The issuing bank will then make the payment to the third party in accordance with the assignment of proceeds.

4. The third party may deduct its fees and expenses from the proceeds before releasing the balance to the beneficiary.

5. The assignment of proceeds is irrevocable and cannot be cancelled by the buyer or the issuing bank.

For example, a company based in the United States wants to purchase goods from a supplier in China. The supplier requires a letter of credit to ensure payment. The issuing bank in the United States issues a letter of credit in favor of the supplier, with the nominated bank in China as the advising bank. The beneficiary requests the assignment of proceeds to a financing institution in China to provide financing for the transaction. The issuing bank sends an advice of assignment to the nominated bank, which confirms the assignment of proceeds to the financing institution. The financing institution deducts its fees and expenses from the proceeds before releasing the balance to the supplier.

The assignment of proceeds is an important security measure in a letter of credit transaction. It protects the beneficiary from non-payment or default and provides financing for the transaction. Therefore, it is essential to understand the assignment of proceeds when dealing with international trade.

Understanding Assignment of Proceeds - Letter of Credit: Maximizing Security with Assignment of Proceeds

The Assignment of Proceeds (AOP) is a powerful tool that can help maximize security in international trade when dealing with a letter of credit. It can be defined as an irrevocable instruction from the beneficiary to the bank to release the proceeds of a letter of credit to a third party. The third party can be a supplier, a logistics provider, or a financial institution. The main benefit of AOP is that it helps mitigate the risk of non-payment, particularly when dealing with unfamiliar buyers or suppliers. In this section, we will explore the benefits of AOP from different points of view and provide in-depth information about this essential mechanism.

1. For the Beneficiary

The primary benefit of AOP for the beneficiary is that it provides a secure payment mechanism that ensures that the proceeds of the letter of credit are released only to the designated party. This mechanism helps reduce the risk of fraud or non-payment, which is particularly useful when dealing with unknown buyers or suppliers. For example, a supplier who receives an AOP from the beneficiary can be confident that the payment will be made, even if the buyer defaults or becomes insolvent.

2. For the Buyer

AOP can also be beneficial to the buyer, as it provides an additional level of security to the transaction. By agreeing to an AOP, the buyer can reassure the supplier that payment will be made once the goods or services have been delivered. This mechanism can help build trust between the parties and facilitate future transactions.

3. For the Bank

Banks can also benefit from AOP, as it provides them with an additional layer of security. By releasing the proceeds of the letter of credit only to the designated party, the bank can help prevent fraudulent activities or disputes between the parties. This mechanism can also help reduce the bank's exposure to risk and improve its reputation in the market.

The Assignment of Proceeds is an essential mechanism that can help maximize security in international trade. By providing a secure payment mechanism, it helps reduce the risk of non-payment or fraud, build trust between the parties, and improve the reputation of the bank.

Benefits of Assignment of Proceeds - Letter of Credit: Maximizing Security with Assignment of Proceeds

When it comes to international trade transactions , the use of letters of credit (LCs) has become increasingly popular as they offer a secure method of payment for both buyers and sellers. However, there is still a risk of non-payment, especially if the buyer defaults on their obligation. This is where the assignment of proceeds comes in. This mechanism provides an added layer of security for the seller, ensuring that they receive payment for their goods or services. In this section, we will explore how assignment of proceeds works in a letter of credit transaction.

Here are some important things to know about assignment of proceeds:

1. Definition: Assignment of proceeds is a legal agreement between the beneficiary (seller) and their bank, where the bank is instructed to release the payment to a third party nominated by the beneficiary. This third party is usually a financing institution that has provided funding to the seller.

2. Process: Once the LC is issued, the seller assigns the proceeds to the financing institution. The bank then notifies the financing institution that the payment has been received and is ready for release. The financing institution will then provide the necessary funds to the seller, minus any fees or charges.

3. Benefits: The seller benefits from assignment of proceeds as it provides added security and reduces the risk of non-payment, especially if the buyer defaults. It also allows the seller to obtain financing at a lower cost, as the financing institution will use the LC as collateral.

4. Examples: Let's say a seller in China is exporting goods to a buyer in the United States. The buyer has opened an LC in favor of the seller, and the LC specifies that the proceeds will be paid to the seller's bank. The seller then assigns the proceeds to a financing institution in China. Once the goods are shipped and the documents are presented to the bank, the financing institution is notified and releases the funds to the seller, minus any fees or charges.

The assignment of proceeds is an important mechanism that provides added security for sellers in letter of credit transactions . By assigning the proceeds to a financing institution, the seller can reduce the risk of non-payment and obtain financing at a lower cost.

How Assignment of Proceeds Works - Letter of Credit: Maximizing Security with Assignment of Proceeds

When it comes to the assignment of proceeds in a letter of credit, there are various parties involved in the process. These parties have different roles, responsibilities, and interests in the transaction. Understanding the perspectives of each party involved can help in maximizing the security of the letter of credit .

1. The Applicant : The applicant is the buyer who requests the letter of credit from their bank. They are also the beneficiary of the proceeds from the letter of credit. The applicant assigns the proceeds to the nominated bank as a security measure for the seller. By doing so, the applicant ensures that the seller will receive payment only if they comply with the terms and conditions of the letter of credit.

2. The Issuing Bank : The issuing bank is responsible for issuing the letter of credit and ensuring that it conforms to the terms and conditions of the underlying contract. The issuing bank may also act as the nominated bank in some cases. If the issuing bank is not the nominated bank, it will forward the assignment of proceeds to the nominated bank.

3. The Nominated Bank : The nominated bank is responsible for examining the documents presented by the seller and ensuring that they comply with the terms and conditions of the letter of credit. The nominated bank is also the beneficiary of the assigned proceeds. The nominated bank releases the proceeds to the seller only when all the conditions of the letter of credit have been met.

4. The Seller : The seller is the beneficiary of the letter of credit and the party that receives payment from the nominated bank. The seller must comply with the terms and conditions of the letter of credit to receive payment. The assignment of proceeds provides the seller with security that they will receive payment once they have fulfilled their obligations.

Understanding the roles and responsibilities of the parties involved in the assignment of proceeds is crucial for maximizing the security of a letter of credit . For example, if the nominated bank is not a reliable institution, it might be beneficial for the seller to request a change of the nominated bank to a more trustworthy one. By doing so, the seller can ensure that they will receive payment once they have fulfilled their obligations, and the buyer can rest assured that their payment is secure.

Parties Involved in Assignment of Proceeds - Letter of Credit: Maximizing Security with Assignment of Proceeds

When it comes to Letter of Credit transactions, the Assignment of Proceeds is a critical tool that can add an extra layer of security for both the buyer and the seller. This method allows the seller to assign the right to receive payment from the issuing bank to a third party, typically a financing bank, as collateral for a loan or as payment for goods or services. The financing bank, in turn, can use these proceeds to pay off the seller's obligations, reducing the risk of non-payment. There are different types of Assignment of Proceeds that can be used in different situations, each with its own benefits and limitations.

1. Clean Assignment of Proceeds: This type of assignment is the simplest form, where the seller assigns all of its rights to receive payment to the financing bank. It is often used when the seller needs to obtain financing and wants to use the Letter of Credit as collateral. The financing bank can then use the proceeds to pay off the seller's debt or use them for other purposes.

2. Trust Receipt Assignment of Proceeds: In this type of assignment, the financing bank takes possession of the goods shipped under the Letter of Credit and holds them in trust for the seller. The seller retains the right to sell the goods and collect payment, but the proceeds must be used to repay the financing bank. This type of assignment is useful when the seller needs to obtain financing to produce the goods, but the buyer wants to ensure that the goods are delivered before payment is made.

3. Transferable Assignment of Proceeds: This type of assignment allows the seller to transfer the right to receive payment to a third party, such as a supplier or subcontractor. The third party can then use the proceeds to pay for goods or services provided to the seller. This type of assignment is useful when the seller is acting as an intermediary between the buyer and the supplier.

Assignment of Proceeds is a powerful tool that can be used to enhance the security of Letter of Credit transactions. By assigning the right to receive payment to a third party, the seller can reduce the risk of non-payment and obtain financing more easily. Different types of Assignment of Proceeds can be used depending on the specific situation, each with its own benefits and limitations.

Types of Assignment of Proceeds - Letter of Credit: Maximizing Security with Assignment of Proceeds

The assignment of proceeds is an important tool that can be used to help maximize the security of a letter of credit. However, there are also risks and challenges associated with the use of this tool. These risks and challenges can come from a variety of different sources, including the actions of the parties involved in the transaction and the specific terms of the letter of credit itself. In order to fully understand the risks and challenges associated with the assignment of proceeds, it is important to consider the issue from a number of different points of view.

Here are some of the risks and challenges that are commonly associated with the assignment of proceeds:

1. Misapplication of funds - One of the biggest risks associated with the assignment of proceeds is the possibility that the funds will be misapplied. This can occur if the bank or other party responsible for disbursing the funds fails to follow the instructions provided in the letter of credit. For example, if the letter of credit specifies that the funds are to be used to pay for a particular shipment of goods, but the bank instead uses the funds to pay off an unrelated debt, the result can be disastrous for the parties involved in the transaction.

2. Disputes over payment - Another risk associated with the assignment of proceeds is the possibility that there will be disputes over payment. This can occur if one of the parties involved in the transaction feels that they are entitled to more or less than what is being offered. For example, if the beneficiary of the letter of credit believes that they are entitled to a higher payment than what the bank is offering, they may refuse to accept the funds and dispute the matter in court.

3. Conflicting instructions - A third risk associated with the assignment of proceeds is the possibility of conflicting instructions. This can occur if the letter of credit provides conflicting instructions regarding the disbursement of funds. For example, if one part of the letter of credit specifies that the funds are to be used to pay for a particular shipment of goods, but another part of the letter of credit provides different instructions, the result can be confusion and disputes over payment.

4. Bankruptcy - Finally, there is a risk that one of the parties involved in the transaction will declare bankruptcy before the funds are disbursed. This can occur if the beneficiary of the letter of credit goes bankrupt before the funds are released, or if the bank responsible for disbursing the funds goes bankrupt before they are able to do so. In either case, the result can be delays and complications in the payment process that can be difficult to resolve.

The assignment of proceeds is an important tool that can help to maximize the security of a letter of credit. However, it is important to be aware of the risks and challenges associated with this tool in order to ensure that it is used effectively. By understanding these risks and challenges, parties involved in the transaction can take steps to minimize the possibility of problems and protect their interests.

Risks and Challenges in Assignment of Proceeds - Letter of Credit: Maximizing Security with Assignment of Proceeds

Case studies on Assignment of Proceeds are an essential aspect of understanding the Letter of credit . It is always good to learn from practical examples to understand the concept of Assignment of Proceeds, which is one of the most commonly used tools to minimize the risk of non-payment in international trades. The studies we will discuss here will provide insights from different angles and will give you a better understanding of the role of Assignment of Proceeds in securing payments in international trade.

1. In the first case study, consider a situation where the exporter is not satisfied with the creditworthiness of the importer's bank. The exporter can then require the importer to arrange for an Assignment of Proceeds. This agreement requires the importer's bank to pay the exporter when the documents meet the terms of the Letter of Credit. With this arrangement, the exporter does not have to rely on the creditworthiness of the importer's bank to receive payment.

2. Another case study involves a situation where the exporter is shipping high-value goods, and the importer's country is known for political instability. In such cases, the exporter can arrange for an Assignment of Proceeds to a bank in a different country. This arrangement ensures that the payment is secure and is not affected by the political situation in the importer's country.

3. In the third case study, consider a situation where the exporter has used several modes of transportation, including air, sea, and road. The exporter can arrange for an Assignment of Proceeds that specifies the bank responsible for releasing the payment at each stage. With this arrangement, the exporter can receive payment as soon as the relevant documents are submitted to each bank.

These case studies demonstrate the significance of Assignment of Proceeds in international trade. It is an effective way to minimize the risk of non-payment and ensure that all parties involved in the transaction are protected.

Case Studies on Assignment of Proceeds - Letter of Credit: Maximizing Security with Assignment of Proceeds

It is clear that the Assignment of Proceeds (AOP) is a valuable tool for enhancing the security of transactions involving letters of credit. It provides an effective mechanism for ensuring that the seller is paid promptly and that the buyer receives the goods or services that they have purchased. From the seller's perspective, the AOP can help to reduce the risk of non-payment and improve cash flow. Meanwhile, from the buyer's point of view, the AOP provides reassurance that the seller will not be paid until the goods or services have been delivered to the required standard. Overall, the AOP can help to create a win-win situation for both parties .

So, what are the key takeaways from this blog post? Here are five key points to remember :

1. The Assignment of Proceeds can be a valuable tool for enhancing the security of transactions involving letters of credit.

2. The AOP provides an effective mechanism for ensuring that the seller is paid promptly and that the buyer receives the goods or services that they have purchased.

3. The AOP can help to reduce the risk of non-payment and improve cash flow for the seller.

4. The AOP provides reassurance that the seller will not be paid until the goods or services have been delivered to the required standard for the buyer.

5. The AOP can help to create a win-win situation for both parties .

To illustrate these points, let's consider the example of a small business that is exporting goods to an overseas buyer. In order to secure payment for their goods, they decide to use a letter of credit with an AOP clause. The AOP clause requires that the bank holding the letter of credit pays the seller's bank directly once the goods have been shipped and the seller's bank confirms that the goods have been loaded onto the carrier. This provides the seller with reassurance that they will be paid once the goods have been delivered, and it also reduces the risk of non-payment. Meanwhile, the buyer can be confident that they will not be required to pay until the goods have been delivered to the required standard.

The Assignment of Proceeds is a powerful tool that can help to enhance the security of transactions involving letters of credit. By providing a mechanism for ensuring that the seller is paid promptly and that the buyer receives the goods or services that they have purchased, the AOP can help to create a win-win situation for both parties.

Conclusion and Key Takeaways - Letter of Credit: Maximizing Security with Assignment of Proceeds

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An assignment of proceeds is a financial document that is used to redirect all or a portion of a currently active letter of credit from the current beneficiary to a third party beneficiary. This type of activity can only take place if the current beneficiary is willing to agree to the arrangement, and files the necessary paperwork with the institution that extends the letter of credit to allow for this redirection of proceeds. Once the institution is satisfied with the paperwork, and the principal party involved with the letter of credit continues to comply with all the terms and provisions associated with that letter of credit, the portion transferred to the third party can be drawn upon at will.

One of the benefits of an assignment of proceeds is that the principal party still retains access to any portion of the proceeds not redirected to the third party, effectively allowing both entities to make use of the same letter of credit when necessary. For example, a parent company may be the principal party but choose to assign a portion of the proceeds from the letter of credit to a subsidiary as a means of providing backup funding for some project that the subsidiary is undertaking. This effectively creates a financial cushion that the subsidiary can draw upon if needed, all under the umbrella of the parent.

An assignment of proceeds can also occur between individuals. One individual serves as the principal party in the arrangement, and may choose to designate a portion of the proceeds to two other individuals as a means of creating some sort of support mechanism for those parties. For example, a parent may secure the letter of credit and allocate a portion of the proceeds to two children who are of legal age to participate in the arrangement. As long as the original beneficiary provides the necessary paperwork to divert a portion of the proceeds to the third party beneficiary, all parties can benefit from the assignment.

While an assignment of proceeds is an excellent and straightforward way to transfer or assign a portion of proceeds to a third party, it is important to note that the principal party remains responsible for the proceeds drawn on that letter of credit. While the beneficiaries are free to repay any amount borrowed on the credit, in the event that they fail to do so the principal party is obligated to settle the debt. For this reason, care should be taken to evaluate the circumstances closely before choosing to enact an assignment of proceeds and make sure each party is aware of his or her responsibilities in terms of repayment.

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Assignment of Proceeds

Assignment of Proceeds . It is a legal mechanism by which the beneficiary of a letter of credit may pledge the proceeds of future drawings to a third party. Assigning proceeds involves giving the letter of credit to a financial institution, which holds the letter of credit until drawn upon, along with irrevocable instructions to the financial institution to disburse proceeds,when generated, in a specified way (such as pay 40 percent of each drawing to XXX Corporation). The financial institution acknowledges the assignment to the assignee. It does not have any obligation to pay any funds to the assignee unless the letter of credit is drawn upon by the beneficiary and payment is received from the issuing or confirming financial institution. An assignment of proceeds is not an assignment or transfer of the letter of credit and the assignee acquires no rights to perform under the letter of credit in order to generate funds.

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§ 5-114. Assignment of Proceeds.

(a) In this section, "proceeds of a letter of credit" means the cash, check, accepted draft, or other item of value paid or delivered upon honor or giving of value by the issuer or any nominated person under the letter of credit . The term does not include a beneficiary's drawing rights or documents presented by the beneficiary.

(b) A beneficiary may assign its right to part or all of the proceeds of a letter of credit. The beneficiary may do so before presentation as a present assignment of its right to receive proceeds contingent upon its compliance with the terms and conditions of the letter of credit .

(c) An issuer or nominated person need not recognize an assignment of proceeds of a letter of credit until it consents to the assignment.

(d) An issuer or nominated person has no obligation to give or withhold its consent to an assignment of proceeds of a letter of credit, but consent may not be unreasonably withheld if the assignee possesses and exhibits the letter of credit and presentation of the letter of credit is a condition to honor .

(e) Rights of a transferee beneficiary or nominated person are independent of the beneficiary's assignment of the proceeds of a letter of credit and are superior to the assignee's right to the proceeds.

(f) Neither the rights recognized by this section between an assignee and an issuer , transferee beneficiary , or nominated person nor the issuer's or nominated person's payment of proceeds to an assignee or a third person affect the rights between the assignee and any person other than the issuer, transferee beneficiary, or nominated person. The mode of creating and perfecting a security interest in or granting an assignment of a beneficiary's rights to proceeds is governed by Article 9 or other law. Against persons other than the issuer, transferee beneficiary, or nominated person, the rights and obligations arising upon the creation of a security interest or other assignment of a beneficiary's right to proceeds and its perfection are governed by Article 9 or other law.

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Project Management Consultant of the Development of Trans South-South Java Road Project - Phase II

REQUEST FOR EXPRESSIONS OF INTEREST

(CONSULTANT SERVICES– SELECTION OF FIRMS)

PROJECT MANAGEMENT CONSULTANT OF THE DEVELOPMENT OF TRANS SOUTH-SOUTH JAVA ROAD PROJECT - PHASE II

TRANSPORTATION

CONSULTING SERVICES

Mode of Financing: Installment Sale

Financing No. IDN-1053

• The Government of Indonesia has received financing from the Islamic Development Bank toward the cost of the Project Management Consultant (PMC) of the Development of Trans South-South Java Road Project, and intends to apply part of the proceeds for consultant services.
• The services include assist ing the Project Management Unit (PMU) in a range of areas, such as : day-to-day project management support, financial management and monitoring, progress monitoring and reporting, quality assurance and performance review for Project Supervision Consultant (PSC), implementation of Anti-Corruption measures, information management and dissemination, environmental and social impact monitoring and management, project monitoring and evaluation, and dissemination of Project Standard Operational Procedure.
• The consulting services shall be carried out for a period of 27 months, and expected to commence in November 2024. The Key personnel staff shall include experts with estimated 213 professional staff man-months.
• The detailed Terms of Reference (TOR) for the assignment is available on the electronic procurement system (SPSE) International Competitive Bidding (ICB) of National Public Procurement Agency (Government Goods/Services Procurement Policy Agency), hereinafter referred to as (LKPP) [ https://spseicb.lkpp.go.id/spseicb/ ]
• The Directorate General of Highways of the Ministry of Public Works and Housing (MoPWH) now invites eligible consultants to indicate their interest in providing the services. Interested consultant firms must provide specific information (form attached) which demonstrates that they are fully qualified to perform the services (brochures, description of similar assignments, experience in similar conditions, availability of appropriate skills among staff, etc.). The shortlisting criteria area:
• Relevance experience is of at least 5 (five) similar assignments in the last 10 (ten) years in the field, including but not limited to experience in project management consultancy, project supervision, and design consultancy, in road/bridge.
• Past experience with Multilateral Development Bank (MDB) in road/bridge projects is preferable , completed and/or ongoing.
• The technical and managerial capability of the firm (Provide only the structure of the organisation, general qualifications, and management competence by describing the proposed quality control and procedures adopted during the execution of the assignment (including ISO certification, if any) and a number of key staff. Do not provide CVs of staff since key experts will not be evaluated at the shortlisting stage).
• The attention of interested Consultants is drawn to Paragraphs, 1.23, and 1.24 Chapter 1, Part 1 of the Guidelines for Procurement of Consultant Services under Islamic Development Bank Project Financing, April 2019 edition, revised in February 2023 (the “Procurement Guidelines”), setting forth IsDB’s policy on conflict of interest for consulting firms (“Consultants”).
• Consultants may associate with other firms to enhance their qualifications , but should indicate clearly whether the association is in the form of a joint venture and/or a sub-consultancy. In the case of a joint venture, all the partners in the joint venture shall be jointly and severally liable for the entire contract, if selected .
• A consultant will be selected in accordance with the Quality and Cost Based Selection method through international shortlisting as set out in the Procurement Guidelines.
• Interested consultants may obtain further information about the bidding process, electronically from the Procurement Team (POKJA) – TPBJK at the email address stated below.
• Expressions of Interest must be submitted through the SPSE Government e-Procurement platform at the website: https://spseicb.lkpp.go.id/spseicb/ from May 08, 2024 to June 06, 2024. Interested Consultants shall register first as a vendor at the mentioned website prior o submitting their Expression of Interest (REOI).

Procurement Committee Kelompok Kerja (Pokja) Pemilihan 33.E.2024

Address           :  Balai Pelaksana Pemilihan Jasa Konstruksi Wilayah DKI Jakarta

                          Jl. Pejompongan Raya No.1, Tanah Abang, Jakarta Pusat 10210

Telephone       : 021 – 2522495

E-mail              : [email protected]  

Website           : https://spseicb.lkpp.go.id/