The act of informing the details of a credit or an amendment to the beneficiary is known as advising under documentary credit transactions.
By advising the credit to the beneficiary, an advising bank certifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received.
Charges, that the advising bank demands in exchange for its advising services, is defined as an advising fee. Advising fee is a part of letter of credit fees.
On this post I would like to write about the advising fee.
Why Banks Apply Advising Fees?
Letter of credit is a payment method, which is mainly used in international trade.
As a result of its international character, letter of credit parties, in particular the issuing bank and the beneficiary, are mostly located in different countries.
For this reason, the issuing bank has to use another bank’s services to transmit the credit to the beneficiary.
An advising bank, that advises the credit to the beneficiary, is located in the same country as beneficiary.
The advising bank receives the documentary credit from the issuing bank via swift platform and sends it to the the beneficiary mostly other means of communication.
According to the letter of credit rules, advising bank’s role is simple and its responsibilities are very limited.
By advising the credit to the beneficiary, an advising bank certifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received.
Advising fees are originated from above mentioned services, that advising banks perform under the letters of credit transactions.
Who Should Pay the Advising Fee?
According to the letter of credit rules, the issuing bank has to pay the advising fee, but in practice, most of the time, advising fees are being paid by the beneficiaries.
Amendment Advising Fee:
It must be stressed here that not only actual letters of credit, but also any subsequent amendments are subject to advising fees.
Many advising banks charge relatively smaller fees for advising amendments comparing to advising fees related to advise of actual letters of credit.
L/C Advising Commission Samples:
- Bank of China Singapore : USD 40,00
- Citibank UAE : AED 150,00
- Commerzbank Germany : Around EUR 100,00
