Distinguish between the following: Red Clause Letter of Credit and Green Clause Letter of Credit

Red Clause Letter of Credit Red clause letter of credit is an advance payment letter of credit. Under the red clause letter of credit, the issuing bank will make an advance payment to the exporter i.e. the seller before the seller ships the goods to the importer i.e. buyer. This is usually done to provide aid to the seller in the form of working capital to purchase raw material, processing and packaging of goods, etc. The advance payment will be done against documentary requirement under the red clause letter of credit. Generally, documents required are written undertaking and receipts. Green Clause Letter of Credit Green clause letter of credit is an extension of the red clause letter of credit, as it provides the advance of not only the purchase of raw materials, processing and packaging of goods, but it also takes into account pre-shipment warehousing at the port of origin and insurance expenses. In usual cases, the advance under this letter of credit is granted only after the purchased goods are stored in bonded warehouses. This type of letter of credit is usually used in transactions related to commodity market such as wheat, rice, gold, etc.