10.9.4-RISK AND THE RELATION TO TRADE CREDIT-GREEN CLAUSE LETTER OF CREDIT
Green clause letter of credit
This is a normal documentary letter of credit, which provides a secured form of credit in that exporters can draw an agreed percentage of the value of the goods to be shipped against presentation of warehouse receipts as collateral. Such receipts will be issued by an authorized party (public warehousing company, bonded warehouse, collateral manager), and issued or endorsed in favour of the bank in question. Proof of adequate insurance cover, with the bank as beneficiary, may also have to be submitted.
This type of credit can provide an exporter with working capital during the buying season and while export processing takes place. The credit will be revolving, in the sense that it must be self-liquidating with export proceeds offsetting the relevant outstanding advances in the order these were incurred. At the end of the season or other agreed period all outstanding advances are liquidated when the last shipment takes place. The advantage is that the lender (bank or buyer) has some control over the goods. Depending on their assessment of the exporter's reliability, the lender may decide to appoint someone to supervise the stocks on their behalf - such supervision is usually called collateral management. This is discussed in detail under 'Warehouse receipts as collateral' earlier in this chapter, and below.
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