The red clause letter of credit is a specific type of letter of credit in which a buyer extends an unsecured loan to a seller. The loans or the funds provided in a red clause letter of credit are known as advances. According to definition “Red clause letters of credit supply advance payments to exporters before they actually ship the goods to the importers. Exporters receive advance payments under red clause letters of credit mostly from the issuing banks. Issuing banks make the advance payment under a red clause letter of credit against presentation of an advance payment guarantee issued by the bankers of the exporter, guaranteeing a refund in the event of failure to ship under the credit.”
These letters are commonly used by beneficiaries who act as purchasing agents for buyers in another country and is normally used only where the buyer and seller have a close working relationship. Though writing a red clause letter of credits has become rare nowadays but it may help someone in need. Consider the tips and sample to learn more.
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Red Clause Letter Of Credit Writing Tips
- The letter should be clear and precise and the main purpose of the letter should be clearly spelt out.
- Use very polite language, yet the tone has to be completely professional.
- Make use of particular jargon. Do not use very simple wordings.
- Write all the needed details, the amount and the mode of repayment. Write clearly about how the repayment has to be done.
Red Clause Letter Of Credit Template
Use our free Red Clause Letter Of Credit to help you get started.
Date: _____________ (Date on which letter is written)
Subject: ________________. (Main purpose of writing the letter)
I am writing this letter to you as we have received a request from _______(name of the company) who is one of our customers, we feel very proud to let you know that our senior authorities have decided to give you financial backing to complete your continuing project.Consequently, we are issuing a red clause letter of credit to Revathi industries of Rs. ______(mention the amount) .As per the letter of credit; our senior management authorises to withdraw the amount. In order to withdraw the amount, you can draw demand draft in favour of ________(name of bank), branch _______(mention the branch) surrounded by the identified time of letter of credit. You being our important customer, we would like to help you as and when you need our help.
We are sure that you will go within the terms and conditions of the company and make repayment of the amount consistent with the agreement.
____________ (Name and signature)
____________ (Name of the organization)
Din Bandhu Foundation,
Date: May 28, 2005
Renuka industries Ltd.
Subject: Red clause letter of credit
This letter is with reference to the request that we have received from our customer, Revathi industries, we take this opportunity to make you aware that our higher management has agreed to give you financial support for the accomplishment of your on-going project. As a result, we issue a red clause letter of credit in the name of Revathi industries for an amount of Rs.20000/-. According to the letter of credit; our higher authority sanctions you to withdraw the said amount. To withdraw the said amount, you can present a demand draft at Bank of Maharashtra, Navi Mumbai Branch within the specified time of letter of credit.
You are our valued customer and we would like to serve you anytime.We hope you will agree to the terms and conditions of the company and pay back the amount as per the agreement.
Din Bandhu Foundation, Mumbai.
The following is the email format to be followed for a Red Clause Letter of Credit.
Subject: ________________. (Main purpose of writing the mail)
Dear ___________, (Name of the recipient)
I am writing to you with reference to the request made by our customer,______________,(name of the organisation/company) we are happy to inform you that our senior officials are happy to provide you financial support for the completion of the project. To that effect we establish a Red Clause letter of credit in favor _____________ (name of the organization/company) for Twenty Thousand Rupees (Rs. 20,000).
As per the letter of credit, our senior officials authorize to withdraw the said amount. You can withdraw the amount by presenting the Demand Draft at _____________, (name of the bank) ____________ (name of the branch) Branch within the stipulated time of the Letter of credit.
We are happy to serve and hope that you would adhere to the terms and conditions of our company and repay us the amount as per agreed.
_______________ (Name of the sender)
_______________. (Name of the organization)