Letter of Credit Fees 2025 — What You’ll Actually Pay & How to Push Them Down
Banks love to dress up charges in acronyms. Let’s tear off the mask and see where your money really goes.
The sales rep swore an LC would “only cost a few points.” Two weeks later you’re staring at a fee statement thicker than a phone book. Sound familiar? You’re not alone. LC pricing hides in plain sight, buried under jargon and line items that feel designed to confuse. This blog strips it down to bare numbers and shows concrete moves to keep those numbers from ballooning.
1. Quick Fee Decoder
Every LC invoice can be boiled down to four buckets:
- Risk Fee — what the bank charges for taking buyer risk.
- Processing Fee — paperwork, SWIFT messages, and doc checks.
- Funding Spread — interest if the bank pre-pays you.
- Penalty Fee — the fine when documents don’t match.
Lock those buckets in your head; the rest of this post shows where the numbers land in each one.
2. Standard Fees: Issuance to Discrepancy
| Fee Component | 2025 Typical Range | Charged By | Comment |
|---|---|---|---|
| Issuance | 65 – 120 bp (annualised) | Issuing Bank | Risk fee; pro-rated for tenor |
| Confirmation | 40 – 95 bp | Confirming Bank | Adds second bank guarantee |
| Advising | $35 – $75 flat | Advising Bank | Domestic deals skip this |
| Amendment | $45 flat (first) | Both Banks | Typos count; watch out |
| Document Examination | $25 – $50 flat | Confirming Bank | Per presentation |
| Discrepancy | $75 – $150 flat | Confirming Bank | Every doc error triggers it |
| Negotiation / Discounting | SOFR + 150 – 300 bp | Nominated Bank | Only if you want cash early |
Note the two stand-outs: Issuance scales with tenor and amount, while Confirmation hinges on buyer credit. Everything else is flat and negotiable.
3. Hidden Extras the Quote Skips
- Courier & Tracking — $30 a pop in many regions, doubled if someone loses the envelope.
- SWIFT MT 799 Pre-Advice — $20 – $40 though half the time the bank waives it if you ask.
- Telex/Fax Lifting — yes, fax fees still show up in 2025; laugh, then tell them to remove it.
- Copy Fees — $10 per doc set; digital uploads erase this.
These tiny cuts add up. On a string of monthly shipments they can equal a full percentage point before you notice.
4. Who Really Sets the Price?
Your issuing bank leads the dance, yet three other players have their hands on the volume knob:
- Confirming Bank Credit Team — if they hate the buyer’s balance sheet, confirmation spikes.
- Trade Credit Insurers — many banks hedge long-tenor LCs; that premium lands back on you.
- Country Risk Desk — political risk surcharges on cargo headed for shaky jurisdictions.
Know these layers exist, and you gain leverage: challenge risk-weight assumptions, supply fresher financials, or split shipments to avoid high-risk periods.
5. Seven Fee-Cutting Plays
- Shorten Tenor — keep the LC expiry tight; roll extensions only if delays bite.
- Shop Confirmation — three quotes, same day. Let banks know they’re in a race.
- Ask for a “First Amendment Free” Clause — saves $45 when the buyer tweaks payment terms.
- Push MT 798 or API Presentation — doc check turns digital; courier costs vanish.
- Bundle Shipments — one LC covering three containers beats three separate LCs every time.
- Post Cash Collateral — painful short-term, but can knock 25 bp off issuance.
- Leverage Your Wallet — move FX or deposits to the issuing bank and call the favour in.
6. Case Study: 32 bps Saved on a $400k Shipment
An apparel importer in Porto faced an all-in quote of 185 bp for a 120-day LC. They cut it to 153 bp by:
- Switching from 120 days to 90 days tenor — risk fee dropped 18 bp.
- Opting for digital doc presentation — courier and discrepancy fees fell by $320.
- Letting the confirming bank discount the LC at SOFR + 160 bp instead of SOFR + 210 bp after offering FX flows.
Total cash kept: $1 280. Not life-changing money, but multiply by 12 shipments and you fund a junior merchandiser’s salary.
7. FAQ
Q: My bank quotes fees in basis points. How do I translate that?
A: One basis point is 0.01 %. Multiply the bp figure by the LC face value, then by the tenor fraction of a year.
Q: Can I avoid confirmation?
A: Only if the seller trusts the issuing bank’s rating. Emerging-market sellers usually insist on confirmation.
Q: Do banks ever waive discrepancy fees?
A: Rarely, but some include one free resubmission if you present docs digitally.
