Document background
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.
