Red Clause L/C
Category: Payments
Definition (plain English)
A red clause LC permits an advance to the seller before shipment, usually to fund production or procurement before documents are presented.
Why it matters commercially
It can help suppliers finance goods, but it increases buyer and bank exposure if production fails, documents never arrive, or the advance is misused.
Example
A buyer rejected a red clause request for a new supplier until sample approval, inspection rights, and advance-use evidence were agreed.
Common mistake
Approving pre-shipment advances inside an LC without controls for production progress, refund obligations, inspection, and non-shipment remedies.
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