For exporters and import-dependent manufacturers, Letters of Credit (LCs) and Bank Guarantees (BGs) are essential trade finance instruments. But they also represent one of the least-controlled and most overcharged areas of banking. What looks like “standard bank charges” often hides recurring excess costs that quietly eat into margins. This article explains where exporters lose money, how banks apply charges, and how banking intelligence helps regain control.
1. LC Issuance Charges That Are Never Fully Understood
Exporters frequently open LCs under tight timelines to fulfill overseas orders. The urgency means charges are rarely reviewed in detail. Issuance fees, handling charges, SWIFT costs, and GST are simply accepted and booked as expenses.
The financial implication is cumulative. Even a small excess percentage on LC issuance, when repeated across dozens of transactions annually, leads to significant cost leakage. Exporters with thin margins feel the pressure but can’t pinpoint the source.
Banks apply LC issuance charges based on sanction terms, internal rate cards, and transaction value slabs. However, discrepancies arise when negotiated rates are not updated in systems or additional charges are layered without clear disclosure.
Bankkeeping’s LC/BG Commission Audit reads bank statements and identifies every LC-linked debit, compares it with sanctioned terms, and flags deviations automatically. This clarity allows exporters to question charges with data, not assumptions.
2. Amendment Charges That Multiply Without Visibility
LC amendments are common—shipment dates change, quantities adjust, or beneficiaries are modified. Exporters approve amendments quickly to avoid shipment delays, often without realizing each amendment attracts fresh charges.
Over time, amendment charges quietly inflate trade finance costs. Exporters may pay amendment fees multiple times for the same LC without tracking the total cost impact.
Banks charge amendment fees per instance, often with minimum slabs and GST applied each time. These charges are rarely consolidated, making it hard to see how much a single LC truly costs.
Bankkeeping tracks LC-wise cumulative charges, showing exporters the true total cost per LC. This allows businesses to optimize amendment frequency and negotiate better terms.
3. BG Commission Charged Even After Expiry
Manufacturers issuing BGs for tenders, performance guarantees, or advance payments often forget to formally close them after expiry. Banks, however, continue charging commissions until closure documentation is completed.
The financial risk is direct cash leakage—commissions paid on guarantees that no longer serve any business purpose.
Banks apply BG commission based on outstanding period, auto-renewal clauses, and minimum billing cycles. If exporters miss closure timelines, charges continue silently.
Bankkeeping highlights BGs that are expired but still charged, enabling timely closure and recovery discussions.
4. Wrong Commission Rates Applied on LCs and BGs
Exporters often negotiate preferential commission rates during sanction or renewal. Unfortunately, these negotiated rates are not always updated in bank systems.
The cost implication is paying standard card rates instead of negotiated rates—sometimes for years—without detection.
Banks rely on internal system configurations to apply rates. If sanction terms are not mapped correctly, excess commission is automatically debited.
Bankkeeping’s Sanction Terms Analyzer compares agreed rates with actual debits and flags mismatches instantly.
5. GST Applied Incorrectly on Trade Finance Charges
GST on LC and BG charges is often applied incorrectly—either at the wrong rate or on non-taxable components. Exporters usually do not verify GST applicability at transaction level.
Incorrect GST application inflates costs and complicates GST reconciliation and input credit claims.
Banks apply GST automatically on defined charge heads, but misclassification leads to over-taxation.
Bankkeeping separates base charges from GST, helping exporters validate tax correctness and raise precise queries.
6. SWIFT and Communication Charges That Go Unquestioned
SWIFT charges are small individually, so exporters rarely question them. But high-volume exporters incur these charges repeatedly across LCs, amendments, and confirmations.
The result is recurring leakage that remains invisible in aggregated bank expense accounts.
Banks apply SWIFT charges per message, often without detailed breakdowns.
Bankkeeping categorizes and totals SWIFT-related charges, helping exporters understand and rationalize communication costs.
7. Multiple Banks, Zero Consolidated Visibility
Exporters often work with multiple banks for risk diversification. Each bank issues LCs and BGs with different charge structures.
Without consolidation, exporters cannot compare costs across banks or negotiate effectively.
Banks apply charges independently, making cross-bank comparison difficult.
Bankkeeping provides a single consolidated view of LC/BG charges across banks, enabling informed negotiation.
8. Delayed Detection Makes Recovery Difficult
Most exporters discover excess charges only during audits—months or years later. By then, recovery becomes difficult and time-consuming.
Delayed detection increases the probability of write-offs rather than recovery.
Banks are more receptive to timely, data-backed queries than retrospective disputes.
Bankkeeping detects issues in near real time, improving recovery success rates.
9. RBI Emphasizes Transparency, But Borrowers Must Verify
The Reserve Bank of India mandates transparency in bank charges and borrower communication. However, transparency does not equal validation.
Exporters must actively verify that what is charged matches what is agreed.
Bankkeeping operationalizes regulatory intent by turning disclosures into actionable intelligence.
10. From Blind Acceptance to Informed Control
Most exporters accept trade finance costs as unavoidable. In reality, lack of visibility—not banking policy—is the real issue.
When exporters audit LC and BG charges systematically, they regain control over margins, improve bank negotiations, and strengthen financial governance.
Bankkeeping transforms exporters from passive payers into informed borrowers who understand, verify, and control trade finance costs.
Final Takeaway
LC and BG charges are not just banking formalities—they are strategic cost centers. For exporters and import-heavy manufacturers, banking intelligence is the only scalable way to audit, control, and reduce trade finance costs without damaging bank relationships.