Anticipatory L/C

An Anticipatory L/C is a special type of letter of credit that allows the beneficiary to obtain an advance of part or all of the goods value before shipment against a clean draft or simple receipt. It is also known as a red clause L/C or green clause L/C. It is mainly used when the beneficiary (exporter) faces cash flow constraints and needs funds to purchase raw materials or organize production, while the importer (applicant) has good creditworthiness and is willing to provide financing support. Points to note: the advance amount is usually a certain percentage of the L/C amount (e.g., 30%-70%), and the beneficiary must deduct the advance and interest when presenting documents later; if the beneficiary fails to ship and present documents on time, the issuing bank has the right to recover the advance and interest from the beneficiary. Difference from other terms: a normal L/C requires document presentation after shipment before payment, whereas an anticipatory L/C allows pre-shipment financing; unlike a packing loan, an anticipatory L/C is financing provided directly by the issuing bank to the beneficiary, without relying on third-party guarantees.