What Is a Revolving Letter Of Credit?

Revolving credit refers to a letter of credit that can be used multiple times, that is, it can be restored to the original amount and used again after each use. It is applicable to the transaction of signing long-term contracts for batch delivery, which can save the importer's issuance fee. ^[1]

Revolving letter of credit

circular (continuing, renewable) credit, revolving letter of credit

If the sales contract between the importer and exporter is performed in batches and in installments over a long period of time, the use of a circular letter of credit can save

Revolving letters of credit can be divided into revolving letters of credit by time and revolving letters of credit by amount .

1. The L / C cyclically means that the beneficiary can withdraw the amount specified in the L / C multiple times within a certain period of time.

2. The L / C revolving according to the amount is that after the amount of the L / C is negotiated, the original amount can be used again until the specified amount is used up.

Under the condition of the letter of credit revolving according to the amount, the specific methods to restore the original amount are:

Automatic cycle. A certain amount is used up in each period, and the original amount can be automatically restored without waiting for the issuing bank's notice.

Non-automatic cycle. After using up a certain amount of money in each period, you must wait for the notice of the issuing bank to arrive before the letter of credit can be restored to the original amount.

Semi-automatic circulation. That is, within a few days after a certain amount is used up, the issuing bank has not issued a notice to stop recycling, and it will automatically recover to the original amount from the × day. letter of credit

The difference between a revolving letter of credit and a general letter of credit is that a general letter of credit becomes invalid after use; a revolving letter of credit can be used repeatedly for many times.

The advantage of a circular letter of credit is that the importer can save the issuance costs by not having to issue a certificate multiple times, and it can also simplify the procedures for the exporter to review and change the certificate, which is beneficial to the performance of the contract.

Therefore, revolving letters of credit are generally used in the case of uniform delivery in equal quantities.