Red Clause documentary credit is a documentary credit authorizing the confirming bank of any other nominated bank to make advances to the beneficiary before presentation of the required documents.
The beneficiary receives funds prior to the shipment of goods.
This kind of arrangement places the burden on the applicant who will be liable for repayment of the advances plus costs if the beneficiary fails to present the documents called for under the documentary credit or if the documents presented by the beneficiary contain discrepancies and/or the terms and conditions of the documentary credit are not fulfilled.
