Red Clause Letter of Credit

Red Clause Letter of Credit is used to address a third party and to allow him to access the amount mentioned in the letter of credit, as per the request of the customer. The letter is used to tell the customer about the clauses of the withdrawal of the money from the bank and providing him about the complete information about the repayment. The letter clearly states the beneficiary name, customer name and the name of the bank which will make the payment on customer’s behalf. Moreover, it also includes the time duration of the letter, including the starting and the expiry date.

In the first paragraph, you tell the beneficiary about the amount he is allowed to draw by using the Red Clause Letter of Credit. In the second paragraph, you inform about the bank from where they can draw the amount, by showing the demand draft. You also need to mention the date when the Red Clause Letter of Credit will expire. That will be the date before which the beneficiary must have to draw the amount. Thereafter, you can add complementary ending.

Instructions

1

Sample of Red Clause Letter of Credit:

ABC Bank
2233 Parkview Street
Los Angeles, CA 90101

Date of Issue: January 15, 2013

Date of Expiry: December 15, 2013

BENEFICIARY:

Optimum Plantations
2232 Business Avenue
Sunnyvale, CA 98284

APPLICANT:

Hexa Industries
701 Second Avenue
Sunnyvale, CA 03824

RE: Red Clause Letter of Credit.

As per request made by our customer, Hexa Industries, which is financially supported by ABC Bank, the letter is subject to establish a Red Clause letter of credit in favour of Hexa Industries, for an amount of US$30,000.

You are now authorized to draw out the abovementioned amount from the ABC Bank, by showing the written demand draft to the bank within the stipulated time for the letter of credit, which will expire on December 15, 2013.

We are happy to serve you and hope that you will comply with the terms and conditions of the agreement.

Authorized Signature

Neil Thompson

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Template of Red Clause Letter of Credit:

[Bank Name]
[Street Address 1]
[Street Address 2]

Date of Issue: [Date of Issue of the Letter of Credit]

Date of Expiry: [Date of Expiry of the Letter of Credit]

BENEFICIARY:

[Beneficiary Company Name]
[Street Address 1]
[Street Address 2]

APPLICANT:

[Applicant Company Name]
[Street Address 1]
[Street Address 2]

RE: [Type of the Letter of Credit. Here, it is Red Clause Letter of Credit]

I am writing this letter, after getting a request from our customer, [Applicant Company Name], which is being financially supported by [Bank Name], to establish a Red Clause letter of credit, which will allow you to draw a sum of [Currency] [Amount].

Using this letter, you are now authorized to draw the abovementioned amount, by showing the demand draft to the [Bank Name].

Make sure, you draw the amount only at the [Bank Name] before the expiry date of the Red Clause letter of credit. The expiry date of the letter is [Date of Expiry of the Letter of Credit].

We are honoured to serve you and expect that you will adhere to the terms and conditions of our company, about the repayment.

Authorized Signature

[Sender/Authority Name]

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Tips & Warnings
- The letter must contain the starting and ending dates of the Red Clause letter of credit. - It should clearly state the amount that can be drawn by the beneficiary. - Image courtesy: kursus-valas.blogspot.com