Revolving letter of credit is a special 

type of letter of credit, which is not covered

under the UCP 600 rules.

Contrary to popular belief, revolving letters of credit are not used frequently.

They may be utilized in limited occasions in international trade, especially when

exporters and importers sign a long term commercial sales contract, which covers
shipments of the same commodity on a regular basis such as;

 Shipments of 10.000 mtons of iron ore from Australia to China monthly

basis for a 6 months period of time
 Shipments of textile products monthly basis from China to USA for a 12
months period of time.

An exporter and importer, who have concluded a contract as indicated above and
wish to have a letter of credit issued to satisfy their contractual payment
obligations, may apply for a revolving letter of credit.

Definition:

A revolving letter of credit is a special letter of credit type, which is structured in a

way so that it revolves either in value or in time covering multiple-shipments over
a long period of time under a single letter of credit.

Types of Revolving Letters of Credit:

i. Revolvement Based on Time: A fix amount could be drawn under letter of credit
within each specific period of time as indicated in the documentary credit until
letter of credit expires.

Example: Letter of credit stipulates that 100.000,00 USD can be drawn on monthly

basis for a 12 months validity period.
  Type 1 – Non-Cumulative Revolving Letter of Credit: For a non-
cumulative revolving letter of credit, the beneficiary can draw each
revolving amount for any given period, and any unused portions cannot
be drawn on the subsequent periods.

Example: Using the above example, the shipper could still ship USD 100.000,00
each month and be fully paid. If the shipper shipped USD 90.000,00 in a given
month, they would still be paid provided that partial shipment is allowed for each
shipments, but they could not get the additional USD 10.000,00 by shipping
excessive amount on the upcoming months.

Type 2 – Cumulative Revolving Letter of Credit: Cumulative revolving letter of

credit means that the unused sums in the L/C can be added to the upcoming
shipments.

Example: Using the above example, the shipper could still ship USD 100.000,00
each month and be fully paid. If the shipper shipped USD 90.000,000 in a given
month, they would still be paid, and they could get the additional USD 10.000,00
by shipping extra in the next months until letter of credit reaches to expiry.

ii. Revolvement Based on Value: A fixed amount is replenished every time just
after it is utilized by the beneficiary within the overall validity of the revolving
letter of credit.

Revolvement dependent upon value could be very risky for the issuing banks as
beneficiaries can make excessive presentations if issuing banks fail to specify
maximum letter of credit limit.

Now, for the other main variety: The value-based revolving letter of credit is much
like its time-based counterpart. The biggest difference is payment from the buyer is
only released when they receive goods worth a certain value.

Say, for example, a revolving letter of credit is issued for $120,000 over six
months for goods worth $20,000 each month. The exporter can only ship and
receive payment for goods worth $20,000 each month. If, for example, they are
only able to produce $15,000 worth of goods in one month, they cannot ship the
goods to the seller, and the seller won’t provide payment. In this case, the value is
very specific, and it really matters.
Advantages of Revolving Letters of Credit

So why issue a letter of revolving credit? There are a number of benefits. Here are
some of the most important ways it can help you run your business:

•   It saves time and money.

•   Because it is revolving, the letter of credit does not need to be reissued for
each transaction during a set period.
•   It helps facilitate regular trade between a buyer and a seller and can help
keep your bank account healthy.

•   It can help build trust between buyers and sellers.

•   It can incentivize sellers to manufacture a consistent level of goods,

especially for non-cumulative and value-based letters.

•   It can provide flexibility in terms of the types of agreements buyers and
sellers can enter into.

Despite the advantages listed above, there are some limitations and drawbacks to
consider:

•   Letters of credit tend to be limited to one supplier only.

•   They don’t apply to one-time transactions.

•   Changes, such as changes to tax law, customs rules, or product design may
require amendments to the agreement.

•   Bank fees may make revolving letters of credit costly, especially for
applicants.
Transferable

From the exporter’s point of view such LCs are not safe. Besides exporter cannot
get such LCs confirmed as no bank will add confirmation to Revocable LCs.

The LC can be transferred only once and only on terms stated in the credit, with
the exception of :
- The amount of the Credit

, 6 - Any unit price stated therein,

- The expiry date,

- The latest shipment date or given period for shipment,

- The period for presentation of documents,

The LC is deemed to be transferable only if it is stated to be ‘Transferable’ in the

LC.

The terms of back to back L/C will be almost identical to the L/C received from
the buyer except to the extent of amount, unit price and delivery dates, which will
be prior to the expiry of original L/C.

RED CLAUSE LETTER OF CREDIT

Such letters of credit contain a clause which enables the beneficiary to avail of an
advance before effecting shipment to the extent stated in the LC. The clause used
to be printed in red, hence the LC is called Red Clause LC. The nominated bank
provides the pre-shipment credit to the beneficiary as per the authority given by the
issuing Bank. In case the beneficiary fails to export the goods or fails to repay the
advance the nominated bank gets the amount paid by the issuing bank.

GREEN CLAUSE LETTER OF CREDIT = RED CLAUSE LETTER OF CREDIT

+advance for ware house and insurance

This is an extension of Red Clause Letter of Credit, in that it provides for advance
not only for purchase of raw materials, processing and/or packing but also for
warehousing and insurance charges at the port pending availability of shipping
space. Generally advance is granted under this LC only after goods are put in
bonded warehouses etc. up to the period of eventual shipment. In such cases
warehouse receipts are obtained as security / documentary evidence.

DEFERRED PAYMENT LETTER OF CREDIT Deferred Payment Credit is an

usance credit where, payment will be made by Issuing bank, on respective due
dates, determined in accordance with the stipulations of the credit, without the
drawing of Bill of Exchange. In a way, it is an extended payment credit. Under
deferred payment credit, no Bill of Exchange will be called upon to be drawn, but
it must specify the maturity at which payment is to be made and how such maturity
is to be determined. Deferred payment arrangements for Imports, providing for
payment beyond 6 months from the date of shipment up to a period of less than
three years are treated as Trade Credits for which procedural guidelines laid down
by RBI for External Commercial Borrowing and Trade Credits are required to be
followed.

ACCEPTANCE LETTER OF CREDIT Acceptance Credit is similar to deferred

payment credit except for the fact that in this credit drawing of a usance Bill of
Exchange is a must. 9 Under this credit, Bill of Exchange must be drawn on the
specified bank for specified tenor, and the designated bank will accept and honour
the same, by making payment on the due dates.

NEGOTIATION LETTER OF CREDIT Negotiation Credit can be a sight credit or

a usance credit. A Bill of Exchange is usually drawn in negotiation credit. The
draft can be drawn as per credit terms. In a negotiation credit, the negotiation can
be restricted to a specific bank or it may allow free negotiation, in which case it is
called as ‘Freely Negotiable Credit’ whereby any bank who is willing to negotiate
can do so. Under a negotiation credit, if the bank nominated as a negotiating bank
refuses to negotiate, then the responsibility of issuing bank would be to pay as per
terms of that credit. However, if the Bill of Exchange is drawn at a tenor (on DA
basis) the issuing bank can pay less discount. In other words, in all circumstances
under a negotiation credit, responsibility of the issuing bank is to pay and it cannot
say that it is the responsibility of the negotiating bank. A bank which effectively
negotiates draft(s)/document(s) buys them from the beneficiary, thereby becoming
a holder in due course.

CONFIRMED LETTER OF CREDIT Confirmed Letter of Credit is a Letter of

Credit to which another bank (bank other than the issuing bank) has added its
confirmation. This is to say, in a Confirmed Letter of Credit the beneficiary will
have a firm undertaking of not only the bank issuing the credit, but also of
confirming bank. The bank which adds its confirmation is called a confirming bank
and it becomes a party to the contract of LC. Generally the confirmation to a credit
is desired by beneficiary from a bank known to him, preferably the one located in
his country so that his risk becomes localised and he can deal easily with a 10 local
bank rather than deal with a bank abroad which has issued the credit. But this type
of LC is costlier to the parties concerned, since there would be charges of
confirming bank. The LC will be confirmed by another bank with prior
arrangement, only when it is advised to do so by the opening bank. Confirmation
can be added only to irrevocable credits and not to revocable credits. When a bank
acts as an advising bank, it has the only responsibility to verify the genuineness of
the credit. But when it adds its confirmation, it becomes a prime obligor like the
issuing bank and undertakings to pay / negotiate / accept the documents as per the
terms of the credit.

STANDBY CREDIT The standby credit is a documentary credit or similar

arrangement however named or described which represents an obligation to the
beneficiary on the part of the issuing bank to make payment on account of any
indebtedness undertaken by the applicant, money borrowed or for any default by
the applicant in the performance of an obligation. These credits are generally used
as a substitute for financial guarantees. In countries like USA, Japan it is not
permissible to issue bank guarantees. Therefore, banks in these countries issue
standby letter of credit in situations where normally a letter of guarantee should
have been issued. The document generally called for under such credits is a simple
statement of claim as certificate of non-performance. The standby works as a
guarantee in the background of the underlying transaction and it is expected that it
will never be drawn. This facility may be extended on a selective banks for
applicants with good track record. The nature of transaction is clean and hence is
risky

IMPORT LETTERS OF CREDIT: COMPLIANCE OF REQUIREMENTS An

import LC is a commitment by the issuing bank to make payment, for the imports
which are to be taken place on a future date. While opening import LC, the
following requirements of various agencies are to be complied with. 11 An Import
LC is normally opened when i) A resident in India is importing goods / software /
designs and drawings into India ii) A resident merchant trader for the purpose of
merchanting trade is importing goods from one country for sale to another country
iii) An Indian exporter executing a contract abroad, imports goods from a third
country into the country where the project is being executed.
What is a Proforma Invoice Document for Exporting?
First, a Proforma Invoice document is an important document that the seller of
goods creates and shares to their buyer.  When the buyer and seller have
communicated the details of the products they want to order, the seller will create a
Proforma Invoice document to to confirm the new order.

The Proforma Invoice document is usually created after a quotation has been sent
and when the sales process is moving closer to a confirmed deal.  It must clearly
include all product details, quantities, pricing and delivery information as agreed
between the buyer and seller.  The Proforma invoice will include the seller’s bank
details so that the buyer can arrange payments as required

ow to Create and Download a Commercial Invoice document for Export

First, a Commercial Invoice document is an important trade document used in
Global Trade.  When products ship internationally, the shipper will have to provide
the buyer with a Commercial Invoice document.  The buyer (importer) will use this
invoice and other shipping documents to get the products cleared through customs
in the country of import.  In doing so, this provides all important information and
instructions for buyers, freight forwarders, Customs, agents and banks (if
required).

The International Commercial Invoice generally does not show tax, as

International transactions for export may not be subject to local taxes.  Therefore,
the exporter must ensure that all information is clearly stated in a correctly
formatted document to avoid the importer having any issues or delays clearing the
goods through customs.

Commercial invoices must be provided for all seafreight and airfreight shipments. 
For example, if you are sending airfreight shipments with FedEx or DHL you will
have to provide a FedEx commercial invoice or DHL commercial invoice.

How to create a compliant Commercial Invoice document.

Some Exporters create shipping documents in broken Microsoft Word templates or
Excel templates.  If these templates are missing vital information it can cause
confusion to buyers and freight forwarders, or can result in costly shipping delays,
fines and demurrage charges.
Shippers use IncoDocs to easily create Commercial Invoices, Packing Lists
and other important shipping documents.  In addition, all templates are aligned to
the United Nations Layout Key recommendations for trade documentation.  This
ensures compliance to avoid problems and delays with trade shipments.

what is the difference between a Proforma Invoice and Commercial Invoice?

The 2 documents are essentially the same thing, the difference may be that the final
quantity on the Commercial Invoice can be different.  Moreover, the quantity of
products ordered (from the Proforma Invoice) is often different to the actual
quantity of goods that have been shipped (Commercial Invoice). However, this is
common in global trade.

However, this difference in quantity of products supplied can be due to many

reasons. Certainly the most commonly it’s because suppliers can have
manufacturing issues. Other reason is the suppliers did not correctly plan how
many products would actually fit inside shipping containers.  

To explain, please read more about some of the common shipping delays.  After
the goods have been shipped, buyers, Freight Forwarders and Customs will require
a set of shipping documents. For the reason that to clear the goods into the country
of import.  So, the seller will provide the buyer with a “set” of shipping documents.
This includes a Bill of Lading (proof of shipment), Commercial Invoice, Packing
List and any other shipping documents as required.

What is a Commercial Invoice?

A Commercial Invoice document is issued to the buyer after the goods have been
delivered or shipped.  Also, the commercial invoice format is essentially the same
as a proforma invoice. But importantly, the commercial invoice confirms the exact
quantity of the products that have actually been loaded and shipped.

 An inland bill of lading is a contract between a shipper and a transportation

company for the movement of goods overland.
 An inland bill of lading is used to carry goods overland and oftentimes to
the port of shipping where the goods can be transported internationally.
 Inland bills of lading are used primarily to cover transportation via rail,
road, or inland waterway.
 Details such as the description of the goods, their value, their origin,
destination, and the terms of their transportation are included in an inland
bill of lading.
  The bill of lading serves as the receipt for the owner of the goods as well as
the carrier's title for the purposes of transportation.
 If the goods are to be shipped overseas, an additional document known as
an "ocean bill of lading" is required.
 A bill of lading is a legal document between a shipper and a transport
company (carrier) that spells out the type, quantity, and destination of the
goods being transported. An invoice tracks the sale of goods between a
buyer and a seller.
 If goods are transported by air instead, there will be an air waybill, which is
used for both domestic and international air transportation.
Understanding an Inland Bill of Lading
An inland bill of lading is often the first transportation document issued for an
international shipment and is used to transport goods over land via rail, road, or
inland waterway, to the point at which the exporter's international carrier can
place it on a ship.

It is the contract between the owner of the goods and the carrier, stating in detail a
description of the goods, their value, their origin, destination, and the terms of
their transportation. It will state the particular vehicle the goods are to be
transported on and how freight charges are to be paid. The bill of lading serves as
the receipt for the owner of the goods as well as the carrier's title for the purposes
of transportation.

Because it is concerned with domestic overland transportation, the inland bill of

lading will not be consigned directly to the foreign buyer of the goods but rather
to a third party. This is usually the international carrier of the goods, but
consignment to another third party, such as a warehouse, freight forwarder, or
packaging company, before it reaches the international carrier is possible.

If consigned to such a third party, that party will, in turn, need to consign it to the
international carrier. If an inland bill of lading is non-negotiable, it may only be
delivered to the named consignee, but if it is negotiable, then the carrier in
possession of the bill of lading may re-route the shipment.

A bill of lading is a legal document between a shipper and a transport company

(carrier) that spells out the type, quantity, and destination of the goods being
transported. An invoice tracks the sale of goods between a buyer and a seller.
Negotiable Bill of Lading
Lading is the process of loading cargo onto a ship or vessel, and a negotiable bill
of lading is one kind of bill of lading. The bill of lading is a legal document
between the shipper and carrier, detailing the type, quantity, and destination of
goods being carried. The negotiable bill of lading is distinguished by the fact that
it is a contract of carriage that can be transferred to a third party.

What Is Through Bill of Lading?

A through bill of lading is a legal document that allows for the transportation
of goods both within domestic borders and through international shipment. The
through bill of lading is often required for the exporting of goods, as it serves as a
cargo receipt, a carriage contract, as well as the title (sometimes) for the products.

A through bill of lading is just one kind of bill of lading. A bill of lading is a
between a shipper of a good and a transporter or carrier used in international trade.

The bill is often required in order to export goods and serve as a legal certificate
authorizing a party to be in possession of and transporting a particular good. This
is because a through bill of lading allows for the shipping carrier to pass the cargo
through several different modes of transportation, and several different
distribution centers.

 A claused bill of lading is a type of bill of lading that shows that the bill of
lading did not provide delivery as stated in the contract.
 A bill of lading is a legal document that tracks a shipment from start to
finish.
 A claused bill of lading would indicate that the delivery included a shortfall
or damaged goods.
 A claused bill of lading can result in a financial loss for the exporter and it
is primarily the exporter's responsibility to prevent a claused bill of lading.
How a Claused Bill of Lading Works
When an item is being shipped, a bill of lading is filled out. The bill of lading
specifies all the pertinent information related to the shipment and tracks it from
the point of origin till its final point of delivery. It is signed by all parties involved
in the shipment process.

A claused bill of lading is used when shipped products deviate from the delivery
specifications or expected quality laid out in the original bill of lading. People also
call a claused bill of lading a "dirty bill of lading" or "foul bill of lading."
 ill of exchange means a bill drawn by a person directing another person to pay the
specified sum of money to another person. A bill of exchange is of real use if it is
accepted by the person directed to pay the amount.

For example, X orders Y to pay ₹ 50,000 for 90 days after date and Y accepts this
order by signing his name, then it will be a bill of exchange.

In general practice, the seller gives a credit period to the buyer on selling goods or on
providing services.

But sometimes, the seller is not in a position to offer credit period to purchaser and
purchaser also will not be in a position to pay immediately.

In such a case, the seller will like that the purchaser shall give a promise in writing to
pay the amount on a certain date.

This written promise then turns into valuable instruments of credit when this written
promise are made in proper form and is properly stamped.

These written instruments are often accepted by banks and we can

advance money against them. Also, we can endorse this instrument i.e. can pass to
another person.

In a situation that produces a claused bill of lading, the receiver, not the shipper,
declares the claused bill of lading.

The clean bill of lading is a type of ocean bill of lading, which is a contract for
shipment between a shipper, carrier, and a receiver for goods shipped overseas by
water.

 AWBs are non-negotiable instruments and must include the shipper's name
and address, consignee's name and address, destination airport, and value of
contents, among other things.
 AWBs are unlike other bills of lading, in that they are non-negotiable instruments,
meaning that it does not specify on which flight the shipment will be sent, or when
it will reach its destination.

Received for shipment bill of lading

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There is only a notation on a bill of lading known as Received for Shipment which
means that the carrier has “received” the cargo at the port facility for loading onto
a specific vessel or voyage..

A bill of lading that is not presented within 21 days after shipment is called a Stale
Bill of Lading. In other words, stale bill of lading is a type of bill of lading which
is presented to the nominated bank after the presentation period.

If one shipper or a group of shippers arrange to charter their goods to final

destination, a vessel is chartered. This chartered vessel is meant to move the goods
exclusively for such shipper or shippers. In such cases, as a proof of receipt of
goods, the charterer who charters the ship issues a document of title which is called
Charter party bill of lading. 

Clean bill of exchange is a type of bill of exchange which does not have any
supporting documents along with it. These types of bills have higher interest rates.
Also read: Bill of Exchange. Difference Between Bill of Exchange and Promissory
Note.
What are the applications of HS Codes?
HS code is being used by Countries’ Customs authorities, different statistical
agencies, market research agencies and many other government bodies, to monitor
and control the import and export of various commodities through:
 Transport tariffs and statistics
 Collection of internal taxes
 Monitoring of controlled goods
 Customs tariffs
 Collection of international trade statistics
 Rules of country of origin
 Trade negotiations
 Risk assessment, information technology and compliance.
 Also many companies are using HS codes to calculate the total landed cost of
imported products as well as identify selling and sourcing opportunities.
 A) Goods (other than radioactive ores) answering to a description in heading
28.44 or 28.45 are to be classified in those headings and in no other heading
of the Nomenclature.
      (B) Subject to paragraph (A) above, goods answering to a description in
heading 28.43, 28.46 or 28.52 are to be classified in those headings and in
no other heading of this Section.
 2.-  Subject to Note 1 above, goods classifiable in heading 30.04, 30.05,
30.06, 32.12, 33.03, 33.04, 33.05, 33.06, 33.07, 35.06, 37.07 or 38.08 by
reason of being put up in measured doses or for retail sale are to be classified
in those headings and in no other heading of the Nomenclature.
 3.- Goods put up in sets consisting of two or more separate constituents,
some or all of which fall in this Section and are intended to be mixed
together to obtain a product of Section VI or VII, are to be classified in the
heading appropriate to that product, provided that the constituents are :
      (a) having regard to the manner in which they are put up, clearly
identifiable as being intended to be used together without first being
repacked;
      (b) presented together; and
    (c) Identifiable, whether by their nature or by the relative proportions in
which they are present, as being complementary one to another.
 4.-  Where a product answers to a description in one or more of the headings
in Section VI by virtue of being described by name or function and also to
heading 38.27, then it is classifiable in a heading that references the product
by name or function and not under heading 38.27
