Result
Letter of credit cost
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
Cost = letter of credit amount × fee ÷ 100 × term ÷ 365. A letter of credit is a bank's commitment to pay the seller on the buyer's behalf once deal conditions are met (e.g. shipping documents are presented), and the fee is the price of that commitment.
Letters of credit are especially common in deals where the buyer and seller don't directly trust each other — often international trade: the seller gets a payment guarantee from a reliable bank instead of trusting an unknown buyer, and the buyer only pays once deal terms are confirmed.
In real contracts, an LC fee can be split into several parts (opening, confirmation, document review), which aren't broken out here — the calculation gives the cost from a single entered rate; if your bank quotes fees by component, sum them into one effective rate first.