Red Clause Letter of Credit

A Red Clause Letter of Credit (LC) is a type of LC that allows the beneficiary (seller) to receive a partial payment upfront from the issuing bank, before the goods are shipped. This allows the seller to finance the production or purchase of the goods, as well as to cover any other expenses associated with the transaction. The “red clause” refers to the fact that the clause in the LC is printed in red ink to distinguish it from the other clauses.