Revolving Letters of Credit typically support business contracts with a large number of regular shipments.
Whilst the business can be supported with standard L/C's, an importer may insist on a revolving L/C in order to.
Reduce the use of the limits assigned by the bank. Reduce the cost, because L/C commission is charged based on the amount and duration of the bank's commitment that may be reduced to the individual shipment.
The following characteristics of revolving L/Cs are supported:
Cumulative / Non-cumulative:
If the credit is marked as 'cumulative' this means that irrespective of what was drawn previously, the remaining available amount is retained and increased with the full revolving amount on the revolving date. This also includes any tolerance that is left over from the previous revolve date.
If the credit is marked 'non-cumulative', any unutilized amount is lost and the available amount is raised to the value of the next shipment.
This field indicates whether the L/C revolves at the time of utilization
(e.g. when documents are presented) or periodically on a specific date..
Revolving Type 'Revolving upon utilization':
Sample revolving clause: “L/C for EUR 100.000,00 +/-10% is revolving 5 times up to a maximum amount of EUR 660.000,00. The credit will revolve automatically after each shipment.”
As there is no period set for revolving, the L/C will revolve upon utilization. The transactions Receiving Documents (LITDCK) or Advising Documents (LITDAV) will therefore create a pending entry in the To-Do list in order to remind the user to handle the revolving L/C transaction.
Revolving Type 'Revolving Periodically':
Periodical revolving can be on Specific time interval ,If the user has entered a revolve date, this date will be used to create a diary entry in the system for the next revolution of the L/C.
'Awaiting Applicant's Request':
The bank may reserve the right to revolve the credit after receipt of applicant's instructions and credit approval. In this case, the system will automatically add a diary entry 5 working days before the next revolving date.