The Red Letter of Credit is a sophisticated financial instrument designed to facilitate international trade by providing both payment security and pre-shipment financing. This specialized form of Letter of Credit includes a unique "red clause" that enables the beneficiary (typically the exporter) to receive a percentage of the credit amount in advance, before shipping the goods. Operating within the Indian legal framework, it must comply with RBI regulations, FEMA guidelines, and international banking practices (UCP 600). The document is particularly valuable in scenarios where suppliers need working capital for production or shipping preparation. It includes detailed terms regarding the advance payment, documentation requirements, shipping conditions, and final payment terms. The Red Letter of Credit is commonly used in industries with long production cycles or where substantial pre-shipment expenses are involved, providing a balanced solution that protects both buyers' and sellers' interests while facilitating trade finance.
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1. Letter of Credit Number and Date: Unique identification number and issuance date of the Letter of Credit
2. Issuing Bank Details: Complete name, address, and SWIFT code of the bank issuing the Letter of Credit
3. Applicant Details: Full name, address, and contact information of the buyer/importer requesting the Letter of Credit
4. Beneficiary Details: Full name, address, and contact information of the seller/exporter who will receive payment
5. Currency and Amount: Specification of the currency and the exact amount of the Letter of Credit
6. Expiry Date and Place: The date and location where the Letter of Credit expires
7. Available With/By: Specifies the bank with which the credit is available and the manner of availability (sight, deferred payment, etc.)
8. Shipment Terms: Details of shipment including latest shipment date, partial shipments, transhipment permissions
9. Document Requirements: List of required documents for presentation (commercial invoice, transport documents, etc.)
10. Payment Terms: Specific conditions and timing of payment, including any negotiation or deferred payment terms
1. Transferability Clause: Include when the Letter of Credit needs to be transferable to a second beneficiary
2. Revolving Terms: Include when the Letter of Credit is revolving, specifying the renewal conditions
3. Red Clause Terms: Specific terms regarding the advance payment facility, including the percentage or amount available as advance
4. Back-to-Back Provisions: Include when the Letter of Credit will be used as collateral for another Letter of Credit
5. Confirmation Instructions: Include when confirmation from another bank is required, specifying the confirming bank
6. Special Conditions: Any additional terms or conditions specific to the transaction
1. Schedule A - Document Requirements: Detailed list and format of all required documents for presentation
2. Schedule B - Product Specifications: Detailed specifications of the goods being traded
3. Schedule C - Shipping Terms: Detailed shipping instructions and requirements
4. Appendix 1 - Bank Forms: Standard forms required by the issuing bank
5. Appendix 2 - Fee Schedule: Detailed breakdown of all banking charges and fees
6. Appendix 3 - Amendment Procedure: Procedures for requesting and processing amendments to the Letter of Credit
Authors
Relevant legal definitions
Clauses
Relevant Industries
Banking and Financial Services
International Trade
Manufacturing
Import/Export
Logistics and Supply Chain
Commodities Trading
Textile Industry
Agricultural Products
Heavy Industries
Retail
Mining and Resources
Energy and Utilities
Relevant Teams
Trade Finance
International Banking
Legal and Compliance
Treasury
Risk Management
Operations
Documentary Credits
Global Transaction Services
Credit Administration
International Trade Operations
Relevant Roles
Trade Finance Manager
International Banking Officer
Export Finance Manager
Import Operations Manager
Letter of Credit Specialist
Trade Operations Officer
Compliance Officer
Documentary Credits Manager
Treasury Manager
Chief Financial Officer
International Trade Specialist
Banking Relationship Manager
Supply Chain Finance Manager
Trade Documentation Officer
Risk Management Officer
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