Green Clause
A green clause credit is so named because the condition relating to this form of advance was historically typed on a documentary credit, when issued in paper form, in green ink.
When a documentary credit does not allow for partial shipments to be effected and/or where the goods are of a type that entail manufacture or production over a period of time, the beneficiary may require a documentary credit to allow for (or may ask its bank to provide) pre-shipment financing in order that they can complete and/or finance the required shipment.
Red Clause
A documentary credit that allows for an advance payment to be made has often been referred to as a ‘red clause' credit because the condition relating to the advance was historically typed on the documentary credit in red ink. This served to clearly distinguish this condition from any others. With the increasing use of SWIFT messages for the issuance of a credit, this term (as well as the ‘green clause') is gradually fading from the vocabulary of documentary credit practitioners.
Delay Penalty Clause
An applicant and beneficiary may have entered into an agreement whereby shipment must be made by a certain date, as evidenced by the latest shipment date, in order to meet the commercial needs of the applicant and/or their use of the merchandise within a specific window in time. However, both parties may recognise that there could be some slippage in the shipment and the beneficiary agrees to a penalty fee being deducted for any delay, should they arrange shipment beyond the latest shipment date stated in the documentary credit.
Evergreen Clause
A documentary credit that provides for, say, engineers to carry out certain aspects of maintenance or construction of machinery etc. may provide the beneficiary with some concerns should the work programme incur unforeseen slippages, against any previously agreed timelines, where such slippage is not the fault of the beneficiary. With this in mind, the documentary credit may allow for it to be automatically extended for further periods (e.g., six months) from the present or any future expiry date.
This subject is covered in far greater detail within our training module ‘documentary credits in practice' which can be purchased at https://www.tradefinance.training/shop/