Red Clause Letter Of Credit

AAA

DEFINITION of 'Red Clause Letter Of Credit'

A specific type of letter of credit in which a buyer extends an unsecured loan to a seller. Red Clause Letters of Credit permit documentary credit beneficiaries to receive funds for any merchandise outlined in the letter of credit. These letters are commonly used by beneficiaries who act as purchasing agents for buyers in another country.

INVESTOPEDIA EXPLAINS 'Red Clause Letter Of Credit'

The funds provided in a Red Clause Letter of Credit are known as advances. These advances are then deducted from the face amount of the credit when it is presented for payment. Red Clause Letters are usually employed to facilitate international exports and trade.

RELATED TERMS
  1. Lender

    Someone who makes funds available to another with the expectation ...
  2. Sight Letter Of Credit

    A letter of credit that is payable once it is presented along ...
  3. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  4. Credit

    1. A contractual agreement in which a borrower receives something ...
  5. Finance

    The science that describes the management, creation and study ...
  6. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
RELATED FAQS
  1. What is a trade deficit and what effect will it have on the stock market?

    A trade deficit, which is also referred to as net exports, is an economic condition that occurs when a country is importing ... Read Full Answer >>
  2. What's the difference between a bank guarantee and a letter of credit?

    A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure ... Read Full Answer >>
  3. Why is the TTM (trailing twelve months) important in finance?

    Using trailing 12-month (TTM) figures is an effective way to analyze the most recent financial data in an annualized format. ... Read Full Answer >>
  4. What is price variance in cost accounting?

    Price variance in cost accounting is the difference between the actual price paid by a company to purchase an item and its ... Read Full Answer >>
  5. How do I perform a financial analysis using Excel?

    Investors can use Excel to run technical calculations or produce fundamental accounting ratios. Corporations use Excel to ... Read Full Answer >>
  6. Which accounting cycle is best for my business?

    Most accounting resources suggest that there are between five and eight different accounting transaction cycles, each of ... Read Full Answer >>
Related Articles
  1. Economics

    In Praise Of Trade Deficits

    When a country imports more than it exports, is it a recipe for disaster or just part of a larger cycle?
  2. Economics

    What are Noncurrent Assets?

    Noncurrent assets are property that a company owns that will last for more than one year.
  3. Economics

    Explaining Risk-Weighted Assets

    Risk-weighted assets is a banking term that refers to a method of measuring the risk inherent in a bank’s assets, which is typically its loan portfolio.
  4. Investing Basics

    How Much Do CPAs Make?

    If you're considering becoming a CPA, here's what you might expect to earn.
  5. Economics

    Explaining Activity-Based Costing

    Activity-based costing (ABC) is a managerial accounting method that assigns certain indirect costs to the products incurring the bulk of those costs.
  6. Economics

    What is a Contra Account?

    A contra account is an offset that reduces the value of a related account.
  7. Savings

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  8. Personal Finance

    How The SWIFT System Works

    SWIFT has become the global standard for processing instructions and messages for payment and securities trade transactions. Investopedia explains what SWIFT is, how it works, how it makes money, ...
  9. Savings

    Review: Discover Checking Account

    Will having a Discover checking account save you money? It will save you fees.
  10. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center