i got a book which mentions green l/c and defines it as an improvement over red clause l/c.i searched the net but couldn't find much about green l/c?could anyone shed more light on it?
make sure i m not talking about evergreen l/c.
I had the same question as your few months ago. It was really hard to find any answer available through the all internet. However I have contacted one North Carolina loan lenders company and they have explained my absolutely everything in a very understandable way. Red clause is a credit letter before shipment and green clause is a credit letter post shipment. Everything is kind of clear here now for me. Hope it helps.
You need to look it up on torrent search engine http://www.torrentbasket.com There is a lot of different information there on the subject, including articles, tutorials, books and other files. As far as I know, a red clause credit is a credit with a special clause incorporated into it that authorises the advising or confirming bank to make advances to the beneficiary before presentation of the shipping documents.
The clause is incorporated at the specific request of the applicant, and the wording is dependent upon his requirements. The applicant still is running the risk that the beneficiary is utilizing the advance amount without fulfilling the transaction, i.e. delivering the goods. Still, the applicant can exercise at least a certain amount of control under a red-clause - as he can require a copy of a contract of carriage or similar evidencing that the beneficary intends to ship the goods. Green Clause is basically used in the same sense, although they are used for oil transactions. I think it would be a good idea to suggest a red-clause as it probably would be more attractive to an importer than a clean payment in advance.
Red Clause and Green Clause L/C's (Pre
shipment and post shipment finance)
Letter of credit and, in particular, irrevocable
documentary letter of credit, are often used as a basis to obtain trade
There are normally two methods open to an exporter to get financing
at the pre-shipment stages. These are the anticipatory letter of credit
or red clause, and packaging credit or green clause credit.
(i) Anticipatory Letter of Credit / Red Clause L/C:
Also known as red clause, the anticipatory letter of credit is
credit granted against L/Cs, which contain a “red” clause. A red clause
L/C is a normal L/C which contains a special clause authorizing the
negotiating/advising or conforming bank to make immediate payment to the
exporter in full or in part f the amount of the L/C, or to make payment
to the exporter from time to time as per L/C terms and against
specified documents and/or fulfillment of any special conditions
mentioned in the contract. The red clause L/C must be irrevocable.
(ii) Packaging Letter of Credit / Green Clause L/C:
Also know as green clause credit, this covers an advance granted by
bank against an L/C not containing a red clause. These advances are made
in different forms such as loans, overdrafts or cash credit.
According to typical export contracts, if payment is not due on
presentation of the document, but 60 or 90 days later, the exporter can
discount, i.e. the L/C is sold at a value below its par value, the L/C
at the bank. Since irrevocable documentary letters of credit are
considered secured, banks and other specialized financial institutions
are usually willing to discount them on favorable condition.
i m still caught up with this green l/c.you said that a bank gives loan or other kind of credit against it.but to whom?seller or buyer?and on what terms?
secondly in the paragraph of post-shipment finacing you mentioned banks discounting l/c's if the documents are presented late.what i figured out is that a bank discounts l/c and then later it wil get full money from the importer or buyer.definitely it gives advantage to the bank but y would exporter wants to acquire discounted revenue?y would he present documents late?
Both are pre-shipment finance, provided by the buyer to the beneficiary, through the issuing bank. The terms of of the financing arrangements would normally concern only the issuing bank and the applicant.
Essentially, both types of LCs allow the beneficiary to draw down an advance amount from the LC, but the red clause LC normally requires only a simple declaration of the beneficiary which states the beneficiary's intention to ship, whereas the green clause LC is more secure for the applicant, in requiring the beneficiary to provide a form of financial guarantee to cover the potential non-repayment of the advance.
Historically, so called, due to the colour of ink used on the letter LCs to draw attention to the provision, and enables the beneficiay to raise working capital for goods or to pay sub-manufacturing contractors, and the like.
Basically both are the same, an LC that allows advance payment by the buyer before shipment of goods upon presentation of a draft by a beneficiary. The only difference i know is Green Clause LC pertains to an LC that allows advance payment before shipment of "goods" specifically green products or in other words" agricultural products or crops".