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.