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REVOLVING LETTERS OF CREDIT

By Mr Old Man
Posted on March 15, 2010
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EMILY’S QUESTION
Sent To: Mr. Old Man
Revolving L/C!

Good morning, Mr O.M

Have you gone back DN after a visit in HN? And did you have a nice time in HN?

Today, my customer has a request for opening a Revolving L/C. I have never issed this kind of L/C so I feel a little embarrassed.

I have read some articles writen by Kim and Bogdan in www.lcviews.com about this kind. However, I still feel unconfident. Can you help me to have more understanding of Revolving L/C as well as a sample of it (Revolving L/C application and a MT700 for it?

Hope to hear from your soon!

Best regards,
Emily

———————-

MR. OLD MAN’S COMMENT

Dear Emily,

Revolving L/Cs are used for shipments of the same commodity at specified intervals, e.g. monthly. It may revolve automatically or subject to certain conditions. The amount available at any one time is equivalent to the value of one partial delivery. Revolving L/Cs can be either cumulative or non-cumulative, but nearly all such credits are non-cumulative.

Under a cumulative resolving L/C, the exporter is allowed to carry over any amounts not drawn in previous periods. For example, if a revolving L/C is issued for US$100,000 monthly, cumulative, and the exporter draws only USD80,000 in one month, the unutilized amount (i.e. USD20,000) may be carried over and added to the amounts available in subsequent periods, that is to say, the sum of US $120,000 becomes available the next month.

Under a non-cumulative revolving L/C, any amount not drawn during a given period may not be drawn in a succeeding period. As in the above example, the unutilized amount of USD20,000 can not be carried over and added to the amount of subsequent shipments, that is to say, the exporter can draw only US$100,000 in each succeeding month.

Hereunder are some fields of MT700 quoted from sample revolving L/Cs:

EX 1:

31D: Date and place of expiry
TWELVE (12) MONTHS AND 15 DAYS FROM DATE OF ISSUE
45A: Description of Goods and / or Services
WHITE SAND IN QUANTITY OF 10,000. MT(+/-5 PCT)
TERMS OF DELIVERY: CIF DA NANG PORT, VIETNAM
32B: Currency Code Amount
USD 100,000.00
47A: Additional Conditions
THIS CREDIT WILL AUTOMATICALLY REVOLVE ELEVEN (11) TIMES, NON-CUMULATIVE.

EX 2:

31D: Date and place of expiry
TWELVE (12) MONTHS AND 15 DAYS FROM DATE OF ISSUE
45A: Description of Goods and / or Services
WHITE SAND IN QUANTITY OF 10,000. MT(+/-5 PCT) EACH MONTH FOR 12 MONTHS UNTIL THE TOTAL QUANTITY OF 120,000 MT IS DELIVERED.
TERMS OF DELIVERY: CIF DA NANG PORT, VIETNAM
32B: Currency Code Amount
USD 1,200,000
47A: Additional Conditions
THIS CREDIT WILL AUTOMATICALLY REVOLVE ELEVEN (11) TIMES FOR THE QUANTITY OF 10,000MT(+/-5%) VALUED AT USD100,000 (+/-5%) UNTIL THE QUANTITY OF 120,000 MT(+/-5%) VALUED AT USD1,200,000 (+/-5%) HAS BEEN FULFILLED.

Note: Please pay attention to fields 32B, 47A of the two examples. There is a difference.

Frank speaking, I am not familiar with revolving L/Cs though having many years been involved in L/C operations. The simple reason is that revolving L/Cs are rarely used in practice.

There is a huge source of references on revolving L/Cs: http://www.google.com/search?hl=en&q=Revolving+letter+of+credit&meta

Best regards,

Mr. Old Man
P/s: It is advisable for the importer that he should take great caution when providing his customer with a revolving L/C since the maximum exposure of the importer under a revolving L/C is not the amount of the L/C, but the amount of the L/C multipled by the number of periods. …

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