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REVOLVING LETTERS OF CREDIT

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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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13 Comments

  1. anonymous

    June 13, 2011 at 6:06 pm

    Sumit writes:Two

    Reply

  2. anonymous

    August 22, 2012 at 12:08 pm

    nagaraj writes:Hai Mr.Old Man,please to talk with you,I want to have more knowledge regarding L.C.s So please please guide/suggest me with available books containing the total descriptions about all types of L.C.s.Please do the needful,Thanking you,yours,Nagaraj

    Reply

  3. mroldmanvcb

    August 22, 2012 at 10:08 pm

    Frankly speaking I do not read books about letters of credit. I learn it on the job and read them here and there on the internet. No need to read books. Just surf on the internet to find out what you need and like to read. You can ask me if there's something difficult to understand.Sorry but I can't help you much. Best regards,Mr. Old Man

    Reply

  4. anonymous

    January 16, 2013 at 10:01 am

    NGA writes:Hi Mr Old Man,Thks for your info for revolving LC.I also have one customer want to open this kind. What can I understand for conditions31D: Date and place of expiryTWELVE (12) MONTHS AND 15 DAYS FROM DATE OF ISSUE-Thanks a lot.NGA

    Reply

  5. mroldmanvcb

    January 16, 2013 at 2:01 pm

    I guess the issuing bank means 12 months plus (+) 15 days from LC isuance date.

    Reply

  6. anonymous

    January 17, 2013 at 10:01 pm

    Bảo Linh writes:Em xin lỗi vì comment không đúng nội dung, nhưng em rất mong anh giúp em hiểu rõ trường hợp sau: Lc quy định "c/o isued by bene". C/o xuất trình có nội dung sau: "l/c no. 1244 dated …,we certify the origin of goods is china", ký bởi bene. Ngân hàng phát hành bắt lỗi " c/o has no link to goods". Lỗi trên có giá trị không ạ. Và nếu có thì có cơ sở nào để bảo vệ quan điểm của ngân hàng phát hành không ạ? Em rất mong sớm nhận được câu trả lời của anh. Em cảm ơn anh

    Reply

  7. mroldmanvcb

    January 18, 2013 at 10:01 am

    ISBP para. 183 says the certificate of origin must appear to relate to the invoiced goods. The goods description in the certificate of origin may be shown in general terms not in conflict with that stated in the credit or by any other reference indicating a relation to the goods in a required document. I wonder if the c/o indicates invoice no or has goods description as described in invoice or in the L/C. If yes, then it is ok.

    Reply

  8. anonymous

    January 19, 2013 at 4:01 pm

    Bảo linh writes:C/o không có bất cứ nội dung gì, ngoại trừ số l/c. NHCK cãi lỗi là họ đã đáp ứng "any reference indicating a relation to the goods" bằng việc quote số l/c, và theo họ như thế là có link đến hàng hoá rồi, vì hàng hoá trên invoice cũng là hàng hoá qui định theo l/c.

    Reply

  9. mroldmanvcb

    January 19, 2013 at 10:01 pm

    Mau C/O deu co o so 10 de ghi so va ngay hoa don. Mr. Old Man e rang Hai quan co th khong chap nhan C/O khong ghi ten hang hoa hoac so invoice.

    Reply

  10. anonymous

    January 27, 2013 at 1:01 pm

    Quỳnh Như writes:Chào anh, anh có thể chỉ cho em tài liệu, sách nào chỉ ra các trường hợp đã xảy ra tranh chấp,lỗi trong quá trình xử lý thư tín dụng của ngân hàng ko ạ, do em làm đề tài về về các lỗi thường gặp trong thanh toán L/C mà ko thấy tài liệu ạ.Cám ơn anh!

    Reply

  11. mroldmanvcb

    January 27, 2013 at 1:01 pm

    Mr. Old Man là người lười lưu trữ nên chẳng có tài liệu nào trong tay. Nếu tiếng Anh của bạn tốt, bạn có thể google cụm từ "L/C common discrepancies" hoặc "common discrepancíe" + "letter of credit" để có thể tìm đọc những tài liệu liên quan.

    Reply

  12. anonymous

    January 27, 2013 at 5:01 pm

    Bảo Ngọc writes:Mr.Old man cho em hỏi 1 số câu về L/C giáp lưng nha:1) Tại sao trên L/C giáp lưng không có ghi chữ "giáp lưng" thậm chí còn phải giấu kín? 2) Làm thế nào để nhận biết đó là L/C giáp lưng? Có dấu hiệu nào riêng biệt không?Em đã có gửi mail cho MR.old man, em mong Mr.old man giúp em để em có thể làm tốt bài thuyết trình của mình ^_^.Em cám ơn MR.Old Man.

    Reply

  13. mroldmanvcb

    January 28, 2013 at 2:01 pm

    Hi,L/C giáp lưng là L/C được phát hành dựa trên L/C chủ, nhưng 2 L/C này hoàn toàn độc lập nhau. Chỉ có ngân hàng phát hành L/C giáp lưng và nhà buôn trung gian mới biết đó là L/C giáp lưng. Dấu hiệu nghi ngờ một L/C có thể là L/C giáp lưng khi L/C đó quy định việc giao hàng đến một nước thứ ba không phải là nước của nhà nhập khẩu (trung gian) hoặc L/C quy định một số chứng từ thể hiện tên người gửi hàng (shipper) là nhà nhập khẩu (trung gian) thay vì tên nhà xuất khẩu…Best regards,Mr. Old Man

    Reply

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