Legal Definitions - RL/C

RL/C stands for revolving letter of credit, which is a type of letter of credit. A letter of credit is a legal document that a bank issues to guarantee payment to a third party (the beneficiary) on behalf of a customer (the account party). The bank agrees to pay the beneficiary if the account party fails to fulfill their obligations under a contract or agreement.

A revolving letter of credit is used when there will be multiple drafts under a single transaction or multiple transactions under a single credit. It self-renews by providing for a continuing line of credit that the beneficiary periodically draws on and the bank customer periodically repays.

For example, a company may use a revolving letter of credit to purchase goods from a supplier on an ongoing basis. The supplier can draw on the letter of credit each time they ship goods to the company, and the company will repay the bank periodically. This allows the company to have a continuous supply of goods without having to apply for a new letter of credit each time.