Charges

[RobJ]

Hi - first time posting on this forum so be gentle

We have a discussion going on in the office regarding how to calculate charges which are payable on a days elapsed basis

For example, if an L/C is confirmed on 22nd March 2007 and the confirmation expires on 15th May 2007, confirmation commission is chargeable for 54 days - However, some are now saying it is actually payable for 55 days (including first and last days).

My personal opinion is it should only be for 54 days.

What is your preferred option

Look forward to seeing results!

[AsifMahmoodButt]

I presume that when you say “confirmation expires on 15th May” you refer to the maturity date of the underlying bill. In my view commission should be charged for 54 day.
Regards,
Khalid

[POLTERD.]

Hi.
I'm less gentle so I would say 55 days.You confirm on 22/03.Is your 1st day of confirmation.Last day of confirmation is 15/05.The l/c will be confirmed till the end of your banking day,which is the 55th.
Best regards,
Bogdan

[KimChristensen]

Dear Rob,

Thanks for the posting and welcome to the forum.

It is in fact a good and relevant question, but I am not sure that there is one single answer to it. Like in your example I think that you can argue for both 54 and 55 days (as clearly illustrated by Khalid and Bogdan).
Basically it depends on the confirming banks “price policy” – and the specific agreement made.

The opinions and “official views” I know regarding this issue is on topics like “who is ultimate responsible for the charges” – not much on the specific issues like how to calculate the charges – and the size of them.

I know of examples where it is “common” to charge confirmation fees “per month” – so compared to your case I would prefer 55 days compared to two months – or even three in the worst case scenario

This is of course why it is important to agree these things before the confirmation is made.

Best regards
Kim

[RobJ]

Many thanks for all of your replies. I must admit in the above scenario I would always calculate on 54 days.

However, I understand the reasoning for using 55 as quite rightly pointed out confirmation is valid on the 1st and last days so we should charge for it.

Many thanks - i think a policy decision will have to be made by the account manager who gets the income

[SvetlanaS]

Here is related question regarding confirmation fees.

Our imports are often covered by deferred payment lc's issued available by deferred payment at 180 days from shipment date.

Standard wording we all agree.
But confirming banks work out confirming fees differently.

Usually in one of the two following Methods:

Method 1
Confirming Bank charges a rate for confirmation which they charge up till expiry date stated on LC.

Then later just after presentation of documents they charge additional rate fee when they incur deferred payment undertaking from date of incurring till date of maturity.

Method 2
Confirming Bank charges a rate for confirmation which they charge up until expiry date plus the tenor (they add the number of days as in this case 180 to the expiry date to get the number of days and then apply the confirmation rate.

Which method is more correct.

We prefer no 2 but only because it is more transparent from the start in that we know the complete fee at one time.

Thank you

Svetlana

[NigelHolt]

I would expect 'method 1' to be the most common. The 'problem' with 'method 2' is that a charge has to be paid for a DPU that might never be given.

[DonSmith]

Have seen both approaches in the United States. Method #1 is more common - i.e. because you do not know if conforming documents will be presented, the confirmation charge is calculated through the expiry date of the credit, and if/when conforming documents are presented, the acceptance commission or deferred payment commission build in the additional period.

[GerhardH]

Hi all,

just getting back on the 54 days or 55 days calculation. I would think about the fact from which moment the bank is obliged to pay under a presentation of documents from beneficiary. If beneficiary will be informed on the first day about L/C advice and the confirmation of the credit, it would be appropriate to calculate from the first day, as it might be possible that beneficiary would present documents to the bank the same day. Otherwise i would prefer the 54 days calculation, as beneficiary will be informed at least on day later about advice and the confirmation when sent by mail.

best regards
Gerhard

[RolandSatchell]

Sorry, I am late to this topic, but have a question to pose which is related. Actually in the case at hand we would collect 55 days. Here is my scenario, same issue as before but I gather that both the conf and acc chgs are for the same party. What if conf is for applicant and acc. chgs for bene. Would anyone collect both from app. Is there any impact for Asia. Would certainly appreciate comments from Asia. real question is, should either party pay their respective chgs (in Asia) or would the app pay both.