hello friends,
how one can identify a revolving letter of credit. is it necessary to mention the word 'revolving' in the letter of credit. under which article will it be governed. how a installment letter of credit is different from the revolving one?
regards
Jim
Revolving Letter Of Credit V Instalment Shipment
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jim
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shahriar
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Re: revolving letter of credit v instalment shipment
Dear Jim,
No, its not necessary to declare a credit as revolving and thus content of the Letter of Credit is the best way to identify a revolving one. UCP has no specific article on revolving letter of credit. i have heard where some people believe that it should be governed by article 32 though i personally do not agree. rather i think Banks issuing revolving letter of credit should specifically exclude Article 32
to identify the differences between a revolving letter of credit and a installment letter of credit, the definition of these two should be enough
The revolving credit is becoming rare. There are two types of
revolving letters of credit are of two types -
Type 1 – Non-cumulative revolving letter of credit means any excess that is not drawn is not available for drawings in future period.
Type 2 – Cumulative revolving letter of credit means any excess would be available in future periods. Further to this scenario, the shipper could not ship the first five months, and ship the in the sixth month and still be paid.
a better analogy will a letter of credit that is amended every month extending expiry and value.
on the other hand a installment letter of credit is something that calls for multiple shipments on specified dates or within specified periods. failure to make shipment for one installment will siege the availability of the rest.
regd
shahriar
No, its not necessary to declare a credit as revolving and thus content of the Letter of Credit is the best way to identify a revolving one. UCP has no specific article on revolving letter of credit. i have heard where some people believe that it should be governed by article 32 though i personally do not agree. rather i think Banks issuing revolving letter of credit should specifically exclude Article 32
to identify the differences between a revolving letter of credit and a installment letter of credit, the definition of these two should be enough
The revolving credit is becoming rare. There are two types of
revolving letters of credit are of two types -
Type 1 – Non-cumulative revolving letter of credit means any excess that is not drawn is not available for drawings in future period.
Type 2 – Cumulative revolving letter of credit means any excess would be available in future periods. Further to this scenario, the shipper could not ship the first five months, and ship the in the sixth month and still be paid.
a better analogy will a letter of credit that is amended every month extending expiry and value.
on the other hand a installment letter of credit is something that calls for multiple shipments on specified dates or within specified periods. failure to make shipment for one installment will siege the availability of the rest.
regd
shahriar
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callzr
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Re: revolving letter of credit v instalment shipment
Why not open a new one rather than amending it regularly?shahriar wrote:Dear Jim,
No, its not necessary to declare a credit as revolving and thus content of the Letter of Credit is the best way to identify a revolving one. UCP has no specific article on revolving letter of credit. i have heard where some people believe that it should be governed by article 32 though i personally do not agree. rather i think Banks issuing revolving letter of credit should specifically exclude Article 32
to identify the differences between a revolving letter of credit and a installment letter of credit, the definition of these two should be enough
The revolving credit is becoming rare. There are two types of
revolving letters of credit are of two types -
Type 1 – Non-cumulative revolving letter of credit means any excess that is not drawn is not available for drawings in future period.
Type 2 – Cumulative revolving letter of credit means any excess would be available in future periods. Further to this scenario, the shipper could not ship the first five months, and ship the in the sixth month and still be paid.
a better analogy will a letter of credit that is amended every month extending expiry and value.
on the other hand a installment letter of credit is something that calls for multiple shipments on specified dates or within specified periods. failure to make shipment for one installment will siege the availability of the rest.
regd
shahriar
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iLC
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Re: revolving letter of credit v instalment shipment
dear callzr,
first of all,
please avoid quoting the whole text. i hope u dont mind. admin, could u please do something? i mean its troublesome. since we usually comments in order, there is no such use of it except creating a long page.
anyway, i guess shahriar in true sense has recommended amending the letter of credit each month. its just an analogy. however, amending credit has some befit like you will be able to save some bank commission. in revolving the credit will be alive for a long time even when the issuing bank or applicant dont want so. but amendment dont have that problem. nevertheless, its not a practical solution to amend credit everytime.
iLC
first of all,
please avoid quoting the whole text. i hope u dont mind. admin, could u please do something? i mean its troublesome. since we usually comments in order, there is no such use of it except creating a long page.
anyway, i guess shahriar in true sense has recommended amending the letter of credit each month. its just an analogy. however, amending credit has some befit like you will be able to save some bank commission. in revolving the credit will be alive for a long time even when the issuing bank or applicant dont want so. but amendment dont have that problem. nevertheless, its not a practical solution to amend credit everytime.
iLC
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cristiand969
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Re: revolving letter of credit v instalment shipment
Dear all,
Allow me a correction to the amendment of LC in view of revolvement. Pls note that there are to types of LC that revolves
+ automatically revolving when credit revolves immediately when it has been utilized
+ not automatically revolving where a reinstatement from the issuing bank is required.
The type depends on the condition within the credit and issuing bank is responsible for that.
Although the swift MT700 has not particular field for this type, in practice, this is quoted in field 47A additional conditions.
regards
cristian
Allow me a correction to the amendment of LC in view of revolvement. Pls note that there are to types of LC that revolves
+ automatically revolving when credit revolves immediately when it has been utilized
+ not automatically revolving where a reinstatement from the issuing bank is required.
The type depends on the condition within the credit and issuing bank is responsible for that.
Although the swift MT700 has not particular field for this type, in practice, this is quoted in field 47A additional conditions.
regards
cristian
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jmitra
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Re: revolving letter of credit v instalment shipment
dear cristian,
that was something new. i could possibility imagine that the issuing bank wrote in 47A "2nd installment will be effective only after we issue an amendment". did you mean that? if yes then i must say that would be a non operative LC for that part and which is significantly different from the revolving LC we used to know and rather close to amendment concept. at one ICC opinion i read UCP does not address revolving credits directly, there are several relevant principles of standard international letter of credit practice that are applicable. i dont think issuing a non operative is actually encouraged. however you have rightly said that SWIFT has no parameter for revolving Letter of credit and therefore you can do virtually anything in field 47a. but whether your example would call a revolving one; i am not sure.
mitra
that was something new. i could possibility imagine that the issuing bank wrote in 47A "2nd installment will be effective only after we issue an amendment". did you mean that? if yes then i must say that would be a non operative LC for that part and which is significantly different from the revolving LC we used to know and rather close to amendment concept. at one ICC opinion i read UCP does not address revolving credits directly, there are several relevant principles of standard international letter of credit practice that are applicable. i dont think issuing a non operative is actually encouraged. however you have rightly said that SWIFT has no parameter for revolving Letter of credit and therefore you can do virtually anything in field 47a. but whether your example would call a revolving one; i am not sure.
mitra
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cristiand969
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Re: revolving letter of credit v instalment shipment
Dear mitra,
I don't know if you are banker, trader, applicant or a beneficiary of letters of credit. One way or another I do appreciate your oppinions which make this site so interesting. However, revolving LCs and generally bankers do not use ' 2nd instalment will be efective after.. amendment' but rather: The L/C revolves once the issuing bank issue an amendment to that effect. Regarding your statement: i dont think issuing a non operative is actually encouraged. this type of revolving is not the customary practice of a particular bank but also a statement used in CDCS manuals which I quote:
'For this reason banks issuing Revolving Credits where reinstatements are dependent upon value may indicate:
a. the overall amount for which the Credit can be drawn for all shipments during its validity
b. that reinstatement is dependent upon receipt by the Negotiating Bank of the Issuing Bank’s authorization for reinstatement. This type of reinstatement is not automatic'
Hope that any confusion went away...
I don't know if you are banker, trader, applicant or a beneficiary of letters of credit. One way or another I do appreciate your oppinions which make this site so interesting. However, revolving LCs and generally bankers do not use ' 2nd instalment will be efective after.. amendment' but rather: The L/C revolves once the issuing bank issue an amendment to that effect. Regarding your statement: i dont think issuing a non operative is actually encouraged. this type of revolving is not the customary practice of a particular bank but also a statement used in CDCS manuals which I quote:
'For this reason banks issuing Revolving Credits where reinstatements are dependent upon value may indicate:
a. the overall amount for which the Credit can be drawn for all shipments during its validity
b. that reinstatement is dependent upon receipt by the Negotiating Bank of the Issuing Bank’s authorization for reinstatement. This type of reinstatement is not automatic'
Hope that any confusion went away...