What is the cost of Letter of Credit in India?

LC charges in India: Opening commission 0.25-0.5% per quarter (usually 0.25% minimum). Amendment charges: Rs 500-2000. Negotiation charges: 0.15-0.25% of LC value. Swift charges: Rs 500-1500. Total LC cost for a 90-day LC is typically 0.5-0.75% of transaction value plus fixed fees.

What is credit period cost in B2B trade?

When a seller extends credit to buyers (net 30, net 60, net 90), they incur an opportunity cost or financing cost. Credit period cost = Transaction Value × (Interest Rate / 365 × Credit Days). For 30 days at 12% annual = 1% cost. This must be factored into the selling price or recovered as financing charges.

Trade Finance Calculator India 2026 — LC Cost & Credit Period Cost Calculator

What is Trade Finance?

Trade finance refers to financial instruments and products used by companies to facilitate international and domestic trade. For Indian businesses, the most common trade finance tools are Letter of Credit (LC), Bank Guarantee (BG), Invoice Discounting, and Credit Period financing.

Letter of Credit (LC): A bank guarantee to the seller that payment will be made on presentation of documents. LC reduces payment risk in international trade. Charges include opening commission (0.25–0.5% per quarter), negotiation charges, and amendment fees.

Credit Period Cost: When you extend 30, 60, or 90-day payment terms to buyers, you bear the cost of financing this receivable. The effective annual cost of credit = (Interest Rate × Credit Days) / 365. This must be factored into your pricing or recovered as finance charges.

Invoice Discounting: Convert unpaid invoices to immediate cash through banks or NBFCs. Rate: 12–18% p.a. for MSMEs through TReDS platforms. Useful when cash flow is tight but you have good receivables.

Trade Finance FAQs

Indian bank LC charges: Opening commission 0.25% per quarter (minimum ₹1,000). Usance charges (for deferred payment LC) 0.5–1% per quarter. Amendment: ₹500–2,000. Negotiation/discounting: 0.15–0.25%. SWIFT charges: ₹500–1,500. Courier: ₹1,000–2,500. Total for a 90-day LC of ₹10L ≈ ₹3,500–7,500.

LC at sight: Payment made immediately upon presentation of documents. No credit extended. Usance LC (Deferred Payment): Payment due after a fixed period (30, 60, 90, 180 days) from presentation. Usance LC costs more but gives the buyer working capital benefit. Seller may discount the usance LC to get immediate payment.

Working capital cost = Credit Extended × (Annual Interest Rate ÷ 365) × Credit Days. Example: Extending ₹10L at 60 days at 12% p.a. = ₹10L × (12% ÷ 365) × 60 = ₹19,726. This is the minimum finance cost you should recover in your pricing when offering credit terms.

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