How letter of credit charges are shared between applicant and beneficiary
It is really hard to predict opening cost of an lc. Because factors that affecting total cost of a letter of credit change one application to another. In addition total cost is shared between applicant and beneficiary differently from one letter of credit to another as well.
According to Letter of Credit Rules : All charges including opening cost, advising cost and confirmation cost should be covered by the applicant.
In Reality :
* Charges covered by applicant : issuing bank charges should be covered by applicant.
* Charges covered by beneficiary : advising bank charges, confirming bank charges, reimbursement bank charges and discrepancy charges are covered beneficiaries.
Letter of credit opening cost change case per case as cost affecting factors are changing. What are the cost affecting factors of opening a letter of credit ?
Issuing bank charges : Issuing a letter of credit is a commercial act and bank open locs in order to make profit.
Letter of credit amount : Banks demand lc issuance charges in percentage. Higher lc amount higher charges.
How letter of credit amount will be backed : Risky lc may cost higher to the applicant. Full lc amount will be backed by a cash deposit at the issuing bank could lower the lc charges.
How letter of credit charges are shared between applicant and beneficiary : See below box for more information.
Payment Term : The longer payment due more fees you may have to pay.
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