When should I use a Letter of Credit (LC)?

LCs are typically used for very large transactions (over $100,000) or when dealing with a new, unvetted supplier where trust is low. They act as an escrow system managed by banks. Because LCs cost 1% to 3% of the transaction value in bank fees, they are not cost-effective for small import runs.

💳 Payment & Finance

Letter of Credit Cost Calculator

Use our letter of credit cost calculator to calculate the total cost of a letter of credit for China imports including opening commission, usance fee, and SWIFT charges.

Updated: 2026-04-13

Planning Reference

Rates Last Reviewed April 2026

Reference Basis

Based on typical bank transfer fees, published LC fee schedules, and benchmark FX spread data.

Planning Note

Bank fees and FX rates change daily. Confirm actual charges with your bank or payment provider before transacting.

Primary opportunity

letter of credit cost calculator
Medium SERP difficulty

Letter of Credit Value USD

Opening Commission Rate % Typically 0.5–1.5% of LC value. Check with your bank.

LC Tenor (days) days Sight LC = 0 days. Usance LC = typically 30–180 days.

Usance/Acceptance Fee Rate % p.a. Annual rate for deferred payment. 0 for sight LCs.

Understanding Letter of Credit Economics

A Letter of Credit (LC) guarantees that the supplier will not get paid until they present exactly conforming shipping documents (like a Bill of Lading matching the P.O.) to their bank. While an LC completely eliminates supplier fraud risk, it introduces severe documentation risk.

If a supplier misspells your company name on the packing list, the LC contains a "discrepancy." Banks typically charge $75 to $150 per discrepancy to resolve. Model these fixed and variable banking fees before committing to an LC.

Tips for China Importers

Never pay 100% upfront to a new supplier. The global standard for China B2B is 30% deposit, 70% before shipment (or against Bill of Lading copy). Full upfront payment removes all your negotiating leverage.
Use Alibaba Trade Assurance for first orders. It adds supplier accountability and dispute resolution at no extra cost to you. Only remove it once you have 3–5 successful orders with a supplier.
Factor FX risk into your cost model. CNY/USD rates can move 3–8% in a year. A 5% FX move on a $50,000 order is $2,500. Consider forward contracts or timing purchases around FX movements.
Calculate the true APR of your supplier payment terms. A 2% discount for early payment (e.g., 2/10 net 30) equates to ~36% APR. If your credit line costs less, take the discount every time.
Match your payment timing to your cash flow cycle. If you pay your supplier before the goods arrive and you have 30-day customer terms, you may be financing 75+ days of inventory. Model your cash conversion cycle.