Undertaking Fee

Undertaking Fee is a fee charged by a bank or financial institution to the applicant for assuming payment or guarantee liability in businesses such as issuing letters of credit and letters of guarantee. It usually occurs when a bank, at the customer's request, issues a letter of credit or standby letter of credit and promises to pay under compliant documents, thus charging an undertaking fee to compensate for its risk. Usage scenarios include importers applying for letters of credit, enterprises applying for bank guarantees, etc. Notes: The undertaking fee is usually charged at a certain percentage of the issuance amount (e.g., 0.1%-0.5%), possibly quarterly or annually; rates vary among banks and should be confirmed in advance; the undertaking fee differs from issuance fees and amendment fees—the issuance fee is a one-time charge at issuance, while the undertaking fee is a continuous risk-bearing fee. It differs from negotiation fees and payment fees, which are charged by the exporter's bank at negotiation or payment. Foreign trade practitioners should specify the fee-bearing party in the contract to avoid disputes over fees.