Letter of Credit Charges - a worked example

How much is your company paying for export Letters of Credit ?

A large UK based manufacturer exporting globally receives approximately 20 Letters of Credit p.a., each of which is confirmed by a major bank and payable at sight.

The Letter of Credit values average GBP 250,000.00 with a validity of 4 months and cover just one shipment per L/C.

Bank charges* for each L/C amount to approximately GBP 2,562.50

This includes:

1 x advising commission: GBP 75.00
2 x amendments: GBP 100.00
1 x shipment drawing (based on 0.125% of documents value): GBP 312.50
1 x presentation of discrepant documents: GBP 100.00

Confirmation fee (charged per quarter or part thereof @ 1.5% p.a) : GBP 1,875.00

Other charges (reimbursing bank charges, courier fees etc): GBP 100.00

Total annual cost (bank charges) GBP 2,562.50 x 20 L/Cs = GBP 51,250.00

*The above charges are based on the tariffs of several UK banks and are for illustrative purposes only. Confirmation fees will vary according to confirming bank's perception of issuing bank / country risk.

In addition to the above, the company will be paying costs of certain documents, such as certified / legalised Certificates of Origin.

There are also the 'intangible' costs including the time and administration associated with Letters of Credit when compared to more straightforward shipments / payment terms.

Are you accurately factoring the cost of Letters of Credit into your export sales price?

By training your key personnel, including export sales, finance and shipping administrators, the above costs can be identified and managed. Unnecessary amendment and discrepancy fees can be significantly reduced by understanding how to manage the whole Letter of Credit process from start to finish.

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