Revolving LC clarification please.....

[Ghauri]

Can any one help me to understand about revolving LC. One buyer has placed order for manufacturing of 1 million items with the supply of 100000 item per month, delivery through 4 shipment@ one shipment weekly. He is signing a contract of 1 million items but giving Revolving LC for 100,000 items only (part shipment allowed ) minimum 25000 items in one shipment as he requires us to supply monthly.

How can we secure ( as a seller) that buyer has to continue this revolving LC and he must renew it till 1 million items are shipped? He should not discontinue the supply? Could we add any clause the buyer or supplier has to complete this contract,if any party( buyer or supplier) discontinue to receive or supply the items. Penalty will be charged to v/versa.

[picant]

Hi Pal,

Not all contracts may be paid by l/c. In this case the l/c amounting to the value of items 100.000,00 will cover the first shipment, than an amendment will extend the l/c for a second shipment etc. So it is valid for commodties,goods that may be allocated to a differen buyer quickly. A type of revolving l/c may work by extending the validity automatically, but the issuing bank will book the credit facility to the buyer for the whole supply of One million items.
Other comments appreciated
Ciao

[dinesh2476]

Hi Gahuri,

Even you can find the same challenge in normal LC's. Issuing bank takes necessary steps before involving in such LC's knowing the fact that complying with such LC's is always challenge and issues LC with condition in favor of both applicant and beneficiary.

Look at the condition given in the LC and if not in favor, make it amended.

Thanks & Regards
Dinesh Kumar

[cristiand969]

The L/C must indicate that it automatically revolves in qty and amount with each shipment effected for four times.
This clause moves the risk of buyer's contractual performance to issuing bank undertaking