Free Online Course in International BusinessLetters of Credit FeesDepending on what has been negotiated, bank charges may be placed against (for the account of) a buyer/applicant or may be shared between a buyer/applicant and a seller/beneficiary. Rarely will all charges be for the account of a seller/beneficiary. If the charges are to be shared, the customary procedure is that each party will pay the applicable fees for his respective country and/or bank.On average the charges could be 1% of the face amount of the letter of credit. These rates are negotiable and may be reduced if a significant amount of letter of credit business is done with a particular bank. In addition to the normal and customary fees, additional fees could be charged for • issuance • pre-advice • advice • amendments • extension • confirmation • documentary examination • payment • negotiation • acceptance • reimbursement • collection without examination • transfer • assignment of proceeds • SWIFT • handling • courier • discrepancy • cancellation • discounting The important step is to identify these costs before the methods of payment are finalized since both parties may feel the costs outweigh the risks and will then choose a less costly method of payment. Documentary Collection FeesTo avoid the higher costs associated with letters of credit, many international businesses are utilizing the documentary collection services of banks. Similar to a letter of credit only in that documents/drafts are passed through the banking system and cannot normally be retrieved by the buyer without payment, there is no bank guarantee or elimination of risk. Because the banks are not absorbing any form of risk, the fees for this type of transaction are much lower than a letter of credit and make this method of payment worthy for consideration when transaction values are below US$10,000 or when the transaction is between parties that have begun to develop a relationship.Fees include • cost of transmitting funds • cost of issuing banker's draft • cost of receipt of transfers • cost of issuing banker's draft • cost of clearing foreign checks • cost of clearing checks in foreign currency
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