Understanding MT 720: Transfer of a Documentary Credit

Introduction

A transferable documentary credit allows the first beneficiary to request that the credit be made available in whole or in part to one or more second beneficiaries. When a transferring bank agrees to effect that transfer, it uses SWIFT message type MT 720 to advise the second beneficiary that a transferred credit is now available to them. The MT 720 is the advice of transfer, not the original credit itself, and it carries the terms that the transferring bank has reproduced from the underlying MT 700 with the permitted modifications under UCP 600 Article 38.

This guide explains what the MT 720 does, how it sits inside the transfer mechanics of UCP 600, where operations break down, and the steps a transferring bank and the second beneficiary should take to keep a transfer clean and payable.

Failure Modes

1. Transfer requested on a non-transferable credit — A credit that omits the word "transferable" cannot be transferred under UCP 600 Article 38; issuing an MT 720 in that case has no valid basis.
2. Partial transfer exceeding the permitted fractions — Splitting the credit among second beneficiaries beyond what the credit allows, or transferring more than 100% of the available amount, creates an inconsistent MT 720.
3. Inconsistent or omitted field mapping — Failing to reproduce field 45A (description of goods), field 46A (documents required), and field 47A (additional conditions) accurately from the MT 700 leaves the second beneficiary with terms they cannot meet.
4. Charges allocation disputes — When the credit does not state who bears transfer costs, the first beneficiary is liable; an MT 720 that ignores this can trigger a refusal to advise the transfer.
5. Late advice of transfer — Advising the MT 720 after the latest shipment date or expiry of the master credit makes the transferred credit unusable from the start.

Resolution

1. Confirm transferability first — Verify that the MT 700 explicitly states "transferable" before any MT 720 is drafted.
2. Check the transferring bank authority — Only the bank nominated as the transferring bank in the credit may effect and advise the transfer; confirm the nomination.
3. Reproduce permitted variations only — Apply the Article 38 allowances (reduced amount, reduced unit price, earlier shipment and expiry, shortened presentation period) and nothing else.
4. Map fields correctly — Carry field 20 (new sender reference), field 21 (the MT 700 reference), and reproduce 31D, 32B, 45A, 46A, and 47A with exact consistency.
5. State the charges clause — Record which party bears the transfer commission so the second beneficiary is not surprised at advising time.
6. Advise within the available window — Send the MT 720 well before the master credit's latest shipment and expiry dates.
7. Preserve the first beneficiary's substitution rights — Note in the transfer advice that the first beneficiary may substitute their own invoice and draft for those of the second beneficiary, up to the original credit amount.
8. Reconcile on presentation — When the second beneficiary presents complying documents, the transferring bank checks them against the MT 720 terms, not the master credit terms, then requests honour from the issuing bank.
9. Keep an audit trail — Retain the MT 700, the MT 720, and the transfer request so any later discrepancy or dispute can be traced.

Conclusion

The MT 720 is the operational heartbeat of a transferred credit. It translates the master credit into a usable instrument for the second beneficiary while keeping the permitted UCP 600 variations intact. Banks that map fields carefully, respect the transferability and nomination rules, and advise within the credit's time windows produce transfers that pay without friction. The second beneficiary, for their part, should read the MT 720 as the governing text and confirm that the reproduced terms are ones they can actually perform.

FAQ

1. What is the difference between MT 700 and MT 720?
   The MT 700 is the original advice of a documentary credit sent by the issuing bank to the advising or nominated bank. The MT 720 is the advice sent by the transferring bank to a second beneficiary when a credit is transferred.

2. Can a credit be transferred more than once?
   Under UCP 600 Article 38, a credit may be transferred only once. A second beneficiary cannot transfer the credit onward to a third beneficiary.

3. Who pays the transfer charges?
   Unless the credit states otherwise, the first beneficiary bears the costs of transfer, including the advising of the MT 720.

4. Does the second beneficiary deal with the issuing bank directly?
   No. The second beneficiary presents documents to the transferring bank under the MT 720. The transferring bank then seeks honour from the issuing bank under the master credit.

5. What happens if the MT 720 terms differ from the MT 700 in a way not permitted by Article 38?
   Those differences have no effect under UCP 600; the transfer is valid only to the extent it mirrors the master credit with the permitted variations. Unauthorised changes expose the transferring bank to liability.

6. Can the first beneficiary substitute invoices under a transfer?
   Yes. Article 38 allows the first beneficiary to substitute their own invoice and draft for those of the second beneficiary, provided this does not cause the credit to be honoured late.

Source Notes

The following source was used as context only for topic identification and background framing. It was not quoted, and no content was reproduced from it:

• Trade Finance Global, "Understanding MT 720: transfer of a documentary credit" (Google News RSS, retrieved 2026-07-15). Context only.