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Cost Comparisons Between Letters of Credit and Export Credit Insurance
September 23, 2021 Ken Click, Business Development Specialist & Mark Klein, Managing Director, Lender Accounts

There are a variety of factors that impact the cost of letters of credit from commercial banks and Export Credit Insurance from EXIM. In comparing these two alternatives, U.S. exporters should understand what these factors are and how they influence costs.

The key factors that affect letter of credit fees an exporter may incur are the country of the foreign buyer’s bank (issuing bank), the dollar amount of the letter of the credit, and the term (sight or usance/deferred). In addition to these, a significant fee driver is whether the letter of credit is confirmed or unconfirmed. To recap an earlier blog post, unconfirmed letters of credit are less expensive to U.S. exporters than confirmed ones because nonpayment risk completely hinges on the foreign buyer’s bank. Confirmed letters of credit, while more expensive, afford less risk to U.S. exporters because an additional bank (typically the U.S. negotiating bank) steps in to accept the nonpayment risk of the foreign buyer’s bank on behalf of the exporter. In confirmed letters of credit, the credit worthiness of the foreign buyer’s bank is a major fee factor.

The main fee drivers in EXIM’s Export Credit Insurance (ECI) are outlined in the Qualifications and Costs brochure. They include the destination country being invoiced, the invoice amount, and the terms, such as 60 days or 90 days. Another fee driver is whether a policy covers multiple foreign buyers or only one. U.S. exporters can obtain a rough estimate of insurance premiums through EXIM’s non-binding fee calculator

EXIM is open in over 180 countries, has no minimum transaction size requirements, and provides coverage that is backed by the full faith and credit of the U.S. government. Schedule a free consultation with an EXIM trade finance specialist to learn more.

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