Red clause letter of credit
A red clause letter of credit is similar to a Letter of Credit which is written to state or confirm the availability of funds for a particular transaction between the seller and buyer. In the case of a letter of credit, there is a time of at least 5 to 10 days once the letter is issued for the payment to be credited. However, a clause is included in the letter stating that the stated amount or credit can be advanced immediately on showing the letter.
A red clause letter of credit must include all the necessary details mainly the amount that has to be credited, the issuing bank and the bank to which it has been issued to. Since this is a red clause letter of credit, it must be written in a formal and precise manner as it is written for the official purpose of transaction of money.
The following is a sample of a Red clause letter of credit
First Class Bank
1407 Gordon Street
Los Angeles, CA 90017
Date of Issue: DD/MM/YYYY
Date of Expiry: DD/MM/YYYY
3346 Pratt Avenue
Sedro Woolley, WA 98284
2135 Peck Street
Durham, NH 03824
Subject: Red Clause Letter of Credit
This letter is written according to our costumer’s request, Sime Industries, of which First Class Bank provides the necessary financial support, and now establishes a Red Clause Letter of Credit to the favor of Sime Industries for an amount of USD$20,000. We have received the letter from our customer and have been requested to contact you and inform you about the procedure that needs to be carried out to credit the amount to your account.
With this letter, you are authorized to draw out the said amount from First Class Bank in a written payment demand, with the necessary detailed expenses to activate the transaction smoothly. Please do ensure that when you bring this letter of credit, you must bring along the necessary set of documents without which the amount will not be credited to you.
The drawing of funds can only be performed at First Class Bank, Los Angeles before the stated expiry date in this Letter of Credit; that is DD/MM/YYYY. Once the date passes, you will not be able to draw the funds without another letter of credit from Sime Industries. We urge you to tend to this matter at the earliest possible and come draw your funds before the expiry date.
We will honor your requirements if you comply with all the related terms and conditions as per our agreement. We are attaching the bank manager’s contact details along this letter including his personal phone number and email address. Please do not hesitate to call him if you have any other doubts and we hope to see you soon.