Red Clause Letter Of Credit

A specific type of letter of credit in which a buyer extends an unsecured loan 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. 



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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.