Understanding the Costs Associated with a Letter of Credit (LC)

In international trade, a letter of credit (LC) is a crucial financial instrument that provides security to both buyers and sellers. However, it’s important to understand the various costs involved in using an LC. Here’s a comprehensive breakdown of the potential charges you might encounter:

1. Advising Fee

This fee is charged by the advising bank for notifying the beneficiary of the LC. It typically ranges from $50 to $150.（RMB300.00)

2. Amendment Fee

For making amendments to the LC, the fee is typically $50 to $100 per amendment.(RMB100.00-150.00)

3. Negotiation Fee

This fee is for the bank to negotiate the documents under the LC. It can be around 0.25% to 0.5% of the LC amount.(Total Amout*0.125%, and the minimum amount is RMB300.00)

4. Courier Fee

This covers the cost of sending documents via courier, which can be around $50 to $100.(RMB600.00)

5. Confirmation Fee

If the LC is confirmed by another bank, there is an additional fee, typically 0.5% to 1.5% of the LC amount.

6. Transfer Fee

If the LC is transferable, there is a fee for transferring it to another beneficiary, usually around 0.25% to 0.5% of the LC amount.

7. Issuance Fee

This fee is for issuing the LC and usually ranges from 0.75% to 1.5% of the LC amount.

8. Reimbursement Fee

This fee is for reimbursing the bank that pays the beneficiary, usually around $50 to $100.

9. Discrepancy Fee

If there are discrepancies in the documents, a fee is charged, typically $50 to $100 per discrepancy.

10. Document Handling Fee

This fee covers the handling and processing of documents, usually around $50 to $100.

11. Acceptance Commission

For accepting a time draft under the LC, the fee is typically 0.125% to 0.5% of the draft amount.

12. Payment Commission

This fee is for making payment under the LC, usually 0.125% to 0.5% of the payment amount.

13. Swift Charges

This fee is for sending messages via the SWIFT network, typically $20 to $50 per message.

14. Handling Fee

A general fee for handling the LC, typically $50 to $100.

Conclusion

The total cost of an LC can range from 0.75% to 1.5% of the transaction value. It’s always a good idea to check with your bank for their specific fee structure. Understanding these costs can help you better manage your international transactions and avoid unexpected expenses. Always check with your bank for their specific fee structure to ensure you have a clear picture of all potential charges.