A Guide to Letter of Credit Charges

In the current global financial climate, many internationally trading companies are turning to Letters of Credit as a means of securing payment from buyers in new or difficult markets.

We regularly hear from internationally trading companies who are shocked by the level of letter of credit charges being deducted by UK based advising or confirming banks.

When negotiating terms with buyers it is always advisable to factor bank charges into your pricing. To help you anticipate these costs, we have drawn up the following list of typical transaction fees taken by several major UK banks (please note that the example pricing is denominated in pounds sterling – GBP – for illustrative purposes only and may not be representative of all bank tariffs):

Advising commission: £60.00 – £95.00

Document Examination (per presentation): 0.145% of the drawing value, min. £100.00

Advice of amendments*: £50.00 per advice (*see below re ‘confirmed credits’)

Discrepancy fee (per presentation): £50.00 – £115.00 (note: the overseas issuing bank will also deduct their own fee in the event that documents are forwarded on this basis).

NB: We are hearing that some banks are charging a fee PER INDIVIDUAL DISCREPANCY. This will have a significant cost impact in the event that you present documents containing multiple discrepancies.

Other charges:

Confirmation fee: this is a ‘risk fee’ taken by the confirming bank (usually located in the exporter’s country). The fee is subject to arrangement and based on the following:

  • Issuing bank risk
  • Country risk
  • Value of the letter of credit
  • Validity period of the letter of credit

The confirmation fee is usually difficult to quantify in advance, unless you have managed to establish which bank is to confirm and they have provided the information to you in advance. The fee will normally be based on an annual percentage of the L/C value charged per month or per quarter (or part thereof). Do bear in mind that it is often possible to negotiate with the confirming bank how this fee is applied. Check out our previous article – What is a Confirmed Letter of Credit?

NB: Increases to the L/C value and extensions to the L/C validity beyond the period already charged for, will also be subject to additional confirmation charges due to the increased risk exposure of the confirming bank.

Note: There is increasing evidence that banks are introducing minimum fees for confirmation (typically £250.00), therefore it is vital that you try to establish the cost prior to issuance.

Reimbursement charges: difficult to quantify, these charges are deducted by ‘third party’ banks who hold the funds on behalf of the issuing bank and remit the value following the claim for settlement by the paying / negotiating bank. A typical reimbursing bank charge will be £50.00 – £100.00.

Courier charges: represent the cost of couriering / despatching the shipping documents to the issuing bank. Typical charges range from £30.00 – £60.00

Handling charges: the most vague of all L/C charges. The charges are taken for a range of reasons, such as SWIFT messages, chasers, holding documents etc. We suggest that if the reason for such a charge is unclear, you contact the bank for clarification or a refund.

In summary……

….. we would advise that as far as possible, you build letter of credit charges into your price. In cases where the confirmation of a bank in the UK is required, you should request that such confirmation is given by a ‘major bank based in the beneficiary’s country’. Such bank should be completely independent to the issuing bank (and country, where this represents a political or economic risk).

If you know which bank is to confirm prior to the letter of credit being issued, contact their Trade Services department to request an indication of cost.

We provide Letters of Credit training courses across the UK including London, Edinburgh, Surrey, Lancashire, East Anglia and South Wales.

2017-03-19T09:07:57+00:00 September 6th, 2016|