How a Compliant Commodity Transaction Actually Works
The documentary sequence behind a legitimate physical trade — explained plainly, in the order it really happens.
Overview
The sequence, demystified
Physical commodity trade runs on a documentary sequence that exists for one reason: neither side should have to trust the other. Each step replaces trust with verification — of the buyer's capacity, the seller's product, and the banks that stand between them.
Large institutional trades often compress this sequence through standing credit lines and direct contracts. But understanding the full choreography matters, because it is also where fraud lives: fake offers, circulated documents, and procedures that invert the logic below. If a procedure asks you to pay before verification, it is not this procedure.
Here is the sequence as it works in legitimate trade — and as Aerisus runs it.
Capabilities
What each document actually does
LOI / SCO
Non-binding expressions of interest and preliminary offers. Useful for scoping; meaningless as commitments. No legitimate seller demands payment at this stage.
ICPO
The buyer's formal, irrevocable commitment to purchase on stated terms. Establishes seriousness and gives the seller a basis to reserve allocation.
SPA
The operative contract. Everything enforceable lives here — specification, inspection rights, laycan, demurrage, performance bonds, arbitration.
LC / SBLC
Bank instruments that make payment conditional on performance. The documentary LC pays against shipping documents; the standby guarantees against default on term programs.
Inspection Certificates
Independent verification that the cargo exists and meets specification — the evidence the LC pays against.
Bill of Lading
The title document. Three originals, issued at loading, controlling delivery at destination. Whoever holds it, holds the cargo.
Process
The documentary sequence
From first inquiry to settled funds — each step verifiable before the next begins.
Inquiry & KYC
Buyer expresses interest — sometimes formalized as a Letter of Intent (LOI) with a corporate information sheet. Both sides complete standard KYC before commercial detail is exchanged.
Soft Offer (SCO)
Seller responds with a Soft Corporate Offer — indicative price, quantity, and terms. Non-binding, but a serious SCO reflects a real allocation, not a circulated template.
ICPO
Buyer issues an Irrevocable Corporate Purchase Order: legal entity, specification, quantity, Incoterm and port, delivery window, and payment instrument — signed by an authorized officer. This is where serious buyers separate from tire-kickers.
Full Corporate Offer (FCO)
Seller returns a binding offer with confirmed price, quality specification, delivery schedule, and payment terms.
Sales & Purchase Agreement
The binding contract — signed and initialed by both parties, fixing specification, tolerances, laycan, inspection rights, performance bonds, and governing law.
Letter of Credit
Buyer's bank issues a documentary LC (SWIFT MT700) under ICC UCP 600, or a standby instrument for term programs. The seller's proof of product follows through bank channels — not before the instrument, and never against an upfront fee.
Inspection & Loading
SGS, Bureau Veritas, or Intertek verifies quality, quantity, and packaging at origin. The buyer may witness loading. Certificates join the documentary package.
Shipment & Settlement
Cargo ships; the bill of lading and certificates route bank-to-bank; payment settles via MT103 against complying documents. Title transfers with the documents, not with promises.
Outcomes
Red flags that end conversations
- Any request for upfront fees before contract and instrument are in place
- "MT799 payment" — the MT799 is a free-format advisory message, not a payment instrument
- Offers of leased or monetized SBLCs as a path to trade
- Pressure to skip inspection or accept a seller-appointed inspector only
- Daisy-chains of brokers between you and any verifiable principal
Continue
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