The Red Letter of Credit is a vital financial instrument in international trade, particularly relevant under New Zealand's trading environment and legal framework. This document type is specifically designed for situations where sellers require advance funding before shipment while still providing buyers with the security of a traditional letter of credit. The red clause provision, which gives this document its name, allows for advance payments typically ranging from 20% to 40% of the credit amount. Used primarily in international trade transactions, the Red Letter of Credit must comply with New Zealand banking regulations, the Contract and Commercial Law Act 2017, and international banking practices (UCP 600). It includes detailed specifications for advance payment terms, document requirements, and payment conditions, making it particularly suitable for transactions involving significant pre-shipment costs or extended manufacturing periods.
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1. Issuing Bank Details: Complete details of the bank issuing the letter of credit, including registration number and contact information
2. Credit Number: Unique identification number of the letter of credit
3. Date of Issue: The date when the letter of credit is issued
4. Applicant Details: Full legal name, address, and contact information of the party requesting the letter of credit
5. Beneficiary Details: Full legal name, address, and contact information of the party in whose favor the letter of credit is issued
6. Currency and Amount: The currency and maximum amount available under the letter of credit, expressed in both figures and words
7. Expiry Date: The final date for presentation of documents
8. Place of Expiry: Location where documents must be presented
9. Required Documents: Detailed list of documents that must be presented for payment
10. Payment Terms: Specific conditions and timing of payment
11. Shipment Terms: Details of shipment including latest shipment date and partial shipments if applicable
12. Description of Goods/Services: Detailed description of the goods or services covered by the letter of credit
13. Governing Law: Specification of New Zealand law as the governing law
1. Transferability Clause: Include when the letter of credit needs to be transferable to another beneficiary
2. Red Clause Provisions: Specific details about advance payment facilities, including terms and conditions for advances
3. Back-to-Back Provisions: Include when the letter of credit is part of a back-to-back arrangement
4. Revolving Credit Terms: Include when the letter of credit is revolving, specifying reinstatement terms
5. Special Instructions: Any additional instructions or requirements specific to the transaction
6. Force Majeure Clause: Include when specific provisions for unforeseen circumstances are required
7. Assignment of Proceeds: Include when proceeds can be assigned to a third party
1. Schedule 1: Document Requirements: Detailed specifications for each required document, including format and content requirements
2. Schedule 2: Advance Payment Terms: Detailed terms and conditions for advance payments under the red clause
3. Schedule 3: Goods Specification: Detailed technical specifications of the goods
4. Appendix A: UCP 600 Incorporation: Specific articles of UCP 600 that apply to this letter of credit
5. Appendix B: Bank Forms: Standard forms required by the issuing bank for various procedures
6. Appendix C: Shipping Schedule: Detailed shipping requirements and timeline if applicable
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