TRADE FINANCE FEES
Letters of Credit
IMPORT LC - FEES, COMMISSIONS & CHARGES
The Charges that will levied by the ISSUING BANK and normally payable by the APPLICANT include Opening Commission, Negotiation/Payment Commission, S.W.I.F.T message fees, Amendment fee, discrepancy fees, delivery order fee, courier fee and outstanding query fee. The following details are for guidance only as the rates charged may vary from bank to bank and if using a trade finance company or other type of financier the charges may be based on a flat fee for the transaction rather than be broken down in the way they are described above.
Opening Commission – This is charged for setting up/issuing the LC – The rate could be 0.125% calculated on the monetary value of the LC and the fee period starts from the date of issuance and ending on the expiry date of the LC or the maturity date for payment. The bank would normally apply minimums to the period and the fee itself. As an example the rate of 0.125% is per month with a minimum charging period of three months and a minimum fee of £60.00. Payment of the fee – On the day the LC is issued.
Negotiation/Payment Commission – This is the fee for handling each presentation of documents under the LC. This will involve the bank checking all the documents and details against those called for within the terms of the LC. The rate is normally around 0.125% on the invoice value of the shipment and as expected a minimum charge would apply. It could be £60 but the banks normally do not have an opened ended fee and so many will set a maximum charge and this could be around £200. Payment of the fee – When the bank settlement the payment to the BENEFICIARY
S.W.I.F.T. message fee – S.W.I.F.T. messages are the format or schema used by financial institutions to send messages to each other on the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network. This is the fee that a bank will charge to send the LC electronically to the BENEFICIARY’S bank. The charge is circa £20 - £25 for each message and on average the APPLICANT can expect to be charged for at least three messages per LC, maybe more if discrepancies or other matters occur. Payment of the fee – This will normally be taken by the ISSUING BANK when they collect the charges for the Negotiation/Payment Commission. Some banks may charge as they go.
Amendment Fee – This is charged by the ISSUING BANK when a change to the LC is requested by the APPLICANT. This could be a simple change such as adding a document or deleting a documentary requirement or it could be an increase or reduction in the LC value. Remember any changes have to be accepted by the BENEFICIARY for them to be effective and binding on all parties. For a simple amendment the fee could be circa £60.00. If it includes an increase in the value of the LC or an extension beyond the then current expiry which takes it into another period, then on a pro-rata basis the Opening Commission will also apply. Payment of the fee – Varies some banks claim each time an amendment is issued others wait until documents are negotiated und the LC
Discrepancy Fee – This is charged by the ISSUING BANK when they receive documents for negotiation under the LC and those documents are found to not be in compliance with the terms and conditions of the LC. The fee is usually a flat amount of circa £50.00 per set of documents. In addition a S.W.I.F.T. message charge will apply as the ISSUING BANK must notify the BENEFICIARY’S bank that documents are discrepant and the charge for the message will usually be around £20.00. Payment of the fee – Usually when documents are paid under the LC. Note the APPLICANT can include a clause in the LC that states “all discrepant document charges are for account of the BENEFICIARY”. Assuming this has been accepted by the BENEFICIARY and this would be case if they had presented documents, then the fees will be deducted from the payment due to the BENEFICIARY.
Delivery Order Fee – This normally applies to goods transported by air using an Air Waybill. The ISSUING BANK will need to prepare and send a delivery order to the airline instructing them to release goods where such goods are consigned to the ISSUING BANK. This will normally be a flat fee of circa £60.00. Payment of the fee – when the ISSUING BANK pays the BENEFICIARY under the LC
The above represent the main charges for an Import LC. Next will be those charges that relate to the Export LC
EXPORT LC - FEES, COMMISSIONS & CHARGES
Advising Fee – Normally charged by the Advising Bank who may be the Beneficiary’s Bank and it covers the bank for receiving the LC from the ISSUING BANK, putting it into the ADVISING BANK’S back office processing system and passing it on to the BENEFICIARY. It is normally a flat fee and it is circa £50.00 or the local currency equivalent – Payment of the fee – Normally when the ADVISING BANK receives the payment from the ISSUING BANK for a presentation of documents. If no presentation takes place, then the fee is collected on the expiry date of the LC
Presentation Handling Fee – The ADVISING or CONFIRMING or NEGOTIATING BANK will charge this fee for each presentation that they handle for the BENEFICIARY under the LC. This is charged as a percentage of the value of the invoice and the rate applied is around 0.125% with a minimum charge of £75.00 or local currency equivalent - Payment of the fee – Normally when the ADVISING BANK receives the payment from the ISSUING BANK for a presentation of documents
Courier Fee – Charged by the bank sending the original documents to the ISSUING BANK. Charges vary but should be around £30.00 or the local currency equivalent - Payment of the fee – Normally when the ADVISING BANK receives the payment from the ISSUING BANK for a presentation of documents
SWIFT Message Fee – Charged by the bank that is sending messages to the ISSUING BANK. This is normally a flat fee of circa £20.00 or local currency equivalent. Payment of the fee – When the ADVISING BANK receives the payment from the ISSUING BANK for a presentation of documents. If no presentation takes place, then the fee is collected on the expiry date of the LC
Discrepancy Fee – Charged when non-compliant documents have been presented for negotiation under the LC. This is normally a flat fee of circa £45.00 or local currency equivalent. Payment of the fee – When the ADVISING BANK receives the payment from the ISSUING BANK for a presentation of documents. Payment of the fee – When the NEGOTIATING / ADVISING BANK receives the payment from the ISSUING BANK for a presentation of documents
Confirmation Commission – This is charged by the CONFIRMING BANK and covers them for confirming the LC. This means that the CONFIRMING BANK agrees to be bound by the terms of the LC in the same way as the ISSUING BANK so the BENEFICIARY can claim against either the ISSUING BANK or the CONFIRMING BANK. The charge calculation varies from bank to bank. In the eyes of the CONFIRMING BANK it will be their view of the risk profile of the ISSUING BANK and the Country that the ISSUING BANK resides. Assume it to be a percentage which for example could 0.5% per quarter or part thereof with a minimum charge of £100 or local currency equivalent. Payment of the fee – It will vary from bank to bank. Some will charge up front while others when the payment is received from the ISSUING BANK for a presentation of documents. This assumes that the confirmation charges are for account of the BENEFICIARY.
Transfer Commission – This is where the BENEFICIARY asks for the LC to be transferred in whole or in part (this being in value terms) to another beneficiary. Assume it to be a percentage which for example could 0.5% per quarter or part thereof with a minimum charge of £125 or local currency equivalent. Payment of the fee – On the date of transfer
Financing Arrangement Fee – This will be charged where the BENEFICIARY requests financing in connect with the LC. This could be pre-shipment or it could be funding against each set of documents presented for negotiation under the LC. This is normally a flat fee of circa £50.00 or local currency equivalent. Payment of the fee – When the finance is provided and is deducted from the funding made available. Interest will also be charged on the funding at interest rates plus a margin agreed between the BENEFICIARY and the bank.
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