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 prior to issuance. In essence, the fee will be charged as a percentage of the L/C value, charged per month or per quarter (or part thereof) with no maximum.
 
Increases to the L/C value and extensions to the L/C validity 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 £200 - £250, regardless of value), 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 bank. A typical reimbursing bank charge will be £50 - £100.

 

Handling Charges: The most vague of all L/C charges. Often deducted by non UK banks (usually the London based correspondent of the issuing bank), these charges can be taken for a range of reasons, such as SWIFT messages, courier / postal charges, chasers, holding documents etc.

 

 

....we would advise that as far as possible, you build the cost of a Letter of Credit 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 UK bank or European bank based in the UK’. Such bank should be completely independent to the issuing bank (and country, where this represents a risk).

 

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

 

A UK based manufacturer exporting globally receives approximately 75 Letters of Credit p.a, each of which is confirmed by a major UK or European bank.

 

L/C values average £30,000 and cover just 1 shipment per L/C.

 

Bank charges for each L/C average £560.00. This includes:

 

1 x advising commission: £50.00
2 x amendments: £100.00
1 x shipment / drawing : £60.00 (minimum charge)
1 x presentation of discrepant documents: £100.00

Confirmation fee:  £200.00 (minimum charge)

Other charges (reimbursement, handling etc): £50.00

 

Total annual cost (bank charges)

 

 

By training key personnel, you can reduce the requirements for L/C amendments and ensure future documents presented contain minimum discrepancies.

 

Potential annual cost saving (based on £200 x 75 L/Cs): = £15,000.00*

 

(*This does not include the significant potential cost savings arising from a reduction in the cumbersome INTERNAL administration associated with Letter of Credit paperwork)