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Red Clause Letter of Credit (L/C) Definition 2 replies,3982 views

Something you should to know some basic of import and export about:

Red Clause Letter of Credit (L/C) Definition

L/C that carries a provision (traditionally written or typed in red ink) which allows a seller to draw up to a fixed sum from the advising or paying-bank, in advance of the shipment or before presenting the prescribed documents. It is normally used only where the buyer and seller have close working relationship because, in effect, the buyer is extending an unsecured L0ant o the seller (and bears the financial risk and the currency risk). Rare nowadays, the red clause L/Cs were once popular in fur trade with China and wool trade with Australia.

A specific type of letter of credit in which a buyer extends an unsecured L0an to a seller. Red Clause Letters of Credit permit documentary credit beneficiaries to receive funds for any merchandise outlined in the letter of credit. These letters are commonly used by beneficiaries who act as purchasing agents for buyers in another country.

The funds provided in a Red Clause Letter of Credit are known as advances. These advances are then deducted from the face amount of the credit when it is presented for payment. Red Clause Letters are usually employed to facilitate international exports and trade.

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Re: Red Clause Letter of Credit (L/C) Definition
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Reply # 1


we are willing to issue a red clause LC to our Chinese suplier, and he agreed to accept it.

However the problem is that our supplier was told by his Chinese Bank that they (his bank) do not accept the red clause LC

Please could you kindly inform us , which Chinese banks are willing to accept Red Clause LC ?

Thank you ,

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