Letter of Intent (LoI) is issued by the buyer to specify the intension to buy a specified product of a specified quantity on specific terms. It should include a target price. A valid LoI must as minimum include:

• Issuing date
• Buyer identified by name, full address, company registration number and contact information
• Specification of the product requested
• Quantity
• Destination
• Shipping terms
• Target price
• Acceptable payment terms
• Any other mandatory requirements

A Purchase Order (PO), a Corporate Purchase Order (CPO) or Irrevocable Corporate Purchase Order (ICPO) is a document issued by a buyer to a seller confirming the commitment to buy the specified commodity at the specified terms and price. A valid PO/CPO/ICPO must as minium include:

• Issuing date
• Validity in time
• Buyer identified by name, full address, company registration number and contact information
• Specification of the product requested
• Quantity
• Origin
• Destination
• Shipping terms
• Agreed price
• Agreed payment terms
• Any other mandatory requirements

A Bank Confirmation Letter (BCL) is a letter issued by a bank (usually buyer’s bank) confirming that the account holder (buyer) has sufficient funds to enter a specified business transaction. The BCL might be addressed to a second party (usually a specified seller) or addressed to the first party holding the money on account

A SWIFT MT199 or MT799 is a SWIFT message issued by buyer’s bank to seller’s bank confirming that buyer has sufficient funds to enter a specified business transaction. It might indicate the funds are being blocked for the transaction for a specified period of time. MT799 is a much stronger commitment than MT199.

A Soft Probe Authorization is an authorization given from one party (usually the buyer) to another party (usually the seller) to contact the first parties bank to obtain information about funds on the party’s account.

A Soft Corporate Offer (SCO) is a non-binding offer issued by the seller or someone representing the seller specifying the product, quantity, price, shipping terms and payment terms.

A Full Corporate Offer (FCO) is binding offer only to be issued by the seller or an authorized representative of the seller specifying the offer in full details.

A valid SCO or FCO must as minimum include:

• Issuing date
• Validity in time
• Specification of the product
• Minimum Order Quantity
• Origin
• Shipping terms
• Price
• Payment terms
• Any other mandatory terms

A FCO must furthermore include:

• Seller identified by name, full address, company registration number and contact information
• Buyer identified by name, full address, company registration number and contact information

The Contract or Sales & Purchase Agreement (SPA) is the agreement between seller and buyer on the transaction in all details. A signed contract is a legally binding agreement between the seller and the buyer. The seller is required to supply under the specified price and terms, and the buyer is equally required to buy at the price and terms.

Each party is entitled to ask for compensation from the other party if the contract is not executed according to each party’s obligations. The contract might specify the compensation for each party under different conditions or it might be up to the court of law to decide which compensation will be suitable in the case of one party not complying with the requirements outlined in the contract.

A valid Contract must as minimum include:

• Issuing date
• Validity in time
• Seller identified by name, full address, company registration number and contact information
• Buyer identified by name, full address, company registration number and contact information
• Full and detailed specification of the product
• Contract Quantity
• Origin
• Shipping terms
• Price
• Payment terms
• Any other mandatory terms

A pre-advise is a SWIFT message giving pre-advise of DLC by MT705 or pre-advise of SBLC by MT766. The pre-advise is basically a notification and a commitment.

The notification aspect is telling the Advising Bank or Transferring Bank that the Issuing Bank is ready, able and willing to issue the included MT700/701/710/711 or MT760 verbiage of a DLC respectfully SBLC.

The commitment part is a number of conditions from the Advising Bank to be met to make the Issuing Bank actually issue the specified DLC or SBLC. Those conditions may vary from anything from asking the Advising Bank to confirm that the Beneficiary is ready, able and willing to supply the service or the goods to being paid for by MT199 or MT799 – to asking the Advising Bank to issue Proof of Product by MT799 and issue Performance Bond by MT760.

A typical scheme using Pre-advice is like this:

• Buyer’s bank issues pre-advise DLC by SWIFT MT705 or pre-advise SBLC by SWIFT MT766 to seller’s bank asking for PoP and PB2% for issuing DLC or SBLC and the verbiage for the DLC or SBLC.
• Seller’s bank responds by sending Proof of Product (PoP) by SWIFT MT799 and Performance Bond 2% (PB2%) by SWIFT MT760.
• Buyer’s bank issues DLC by SWIFT MT700 or SBLC by SWIFT MT760.
• Seller ships the goods.

A Documentary Letter of Credit (DLC) is a highly structured SWIFT message. The SWIFT numbers are MT700 continued by MT701 – used by banks having an agreement on exchange of DLCs (i.e. has “key” to each other) – or MT710 continued by MT711 – used by third party banks – without such agreement.

A DLC has up to more than 70 different articles (“tags”) specifying different aspects of the credit making a DLC both highly structured and at the same time highly complex. Each article and the valid options are defined in ISBP 745 authored by ICC. The complexity is the main reason why some sellers will charge more for using DLC over SBLC+TT.

According to the lastest version UCP by ICC UCP600, all DLCs are Irrevocable even not stated or even stated differently. A DLC cannot be revocable.

A DLC is a documentary credit, which means that payment is entirely an solely conditional upon presentation of documents pre-listed in the DLC and their pre-listed contant/value. The bank will not as such go out and check if the commodity outlined in the DLC is actually present somewhere in the physical world.

Documentary Letter of Credits might have the following main extensions:

• DLC at Sight – means a DLC issued for future payment.
• Revolving DLC – means a DLC with repeated payment ex. every month on the same conditions.
• Transferable DLC – allows the DLC to be transferred from one bank to another bank (max. one transferring bank).
• Divisible DLC – allows partial shipment and related payment.
• Confirmed DLC – means that the advising (“recieving”) bank or a third party confirming bank is confirming the credit to the beneficiary, which implies that the confirming bank guarantees the credit toward the beneficiary.
• Deferred (usance) DLC – means that the payment is executed a specified number of days after documents are presented.
• Advance Payment (Red Clause DLC) – allows (partial) advance payment without presentation of documents.
• DLC by Negotiation – means that the Nominated bank pays the benificiary AFTER approval of payment by the Issuing Bank, Confirming Bank and Transferring Bank but BEFORE getting paid thru the lines back to the Issuing Bank or Reimbursing Bank.
• DLC by Payment – means that the Nominated bank will not pay the benificiary UNTIL it has received payment thru the lines bank to the Issuing Bank or Reimbursing Bank.
• Back to back DLC – means that one DLC received is the basis of issuing another DLC without the first DLC being transferred. Bank to bank DLC is much more flexible than Transferred DLC but also more risky for the bank doing the back to back setup, which means that the bank most likely will ask the applicant to apply for (full) credit line for the “next” DLC.

Parties/roles involved in DLC:

• Applicant – the party applying for the letter of credit, i.e. usually the buyer.
  During Issuing the Credit
  • Apply for DCL at the Issuing Bank.

  During Execution of Payment

  • Reimburse/pay the Issuing Bank.
• Issuing (Opening) Bank – the bank issuing the credit on behalf of applicant, i.e. usually the applicant’s/buyer’s bank.
  During Issuing the Credit
  • Opens the DLC to the Advising Bank or Transferring Bank – using SWIFT MT700/701 or if third party bank MT710/711.
  • Eventually:
    • Requests confirmation from Confirming Bank by sending the DLC by SWIFT MT700/701 or MT710/711 to the Confirming Bank.
    • By SWIFT MT740 requests for Irrevocable Reimburment Undertaking (IRU) from the Reimbursing Bank.

  During Handling of Documents

  • Approves or disapproves payment in response to compliance or discrepancies advised by Negotiating Bank – eventually after examining the forwarded documents.
  • Advises payment by:
    • SWIFT MT752 to the Transferring Bank or Nominated Bank.
    • SWIFT MT756 to the Reimbursing bank.

  During Execution of Payment

  • Reimburses by SWIFT MT202 the Nominated Bank OR the Reimbursing Bank.
  • Gets paid by the Applicant.
• Reimbursing Bank – the bank doing the payment on behalf of Issuing Bank. Might be required if the Issuing Bank requests the Transferring or Advising Bank to confirm the DLC.
  During Issuing the Credit
  • Acknowledges or rejects the request for reimburment undetaking – as reply to the request from the Issuing Bank.
  • Advises the Transferring Bank, Confirming Bank or Advising Bank of irrevocable reimbursement undertaking.

  During Handling of Documents

  • Gets advise from Issuing Bank to reimburse the Transferring Bank or Nominated Bank.

  During Execution of Payment

  • Reimburses by SWIFT MT202 the Nominated or Transferring Bank.
  • Asks Issuing Bank for reimbursement.
• Transferring Bank – the bank transfering the credit from issuing bank, i.e. reseller’s bank. The transferring bank as such has no obligations towards the beneficiaries as the credit is being “redirected”
  During Issuing the Credit
  • Accepts or reject by SWIFT MT730 to the Issuing Bank to transfer the DLC to the Advising Bank.
  • Transfers the DLC by SWIFT MT720/721 to the Advising Bank.

  During Handling of Documents

  • Approves or disapproves payment in response to discrepancies advised by Negotiating Bank – eventually after examining the forwarded documents.

  During Execution of Payment

  • Reimburses by SWIFT MT202 the Nominated Bank.
  • Pays the 1st Beneficiary.
• Confirming Bank – the bank guaranteeing the payment to the beneficiaries.(If no confirming bank then the issuing bank is the guarantor.)
  During Issuing the Credit
  • Accepts or rejects to confirm the DLC by replying to the request from the Issuing Bank or Transferring Bank.
  • Advises the Tranferring Bank or Advising Bank of the confirmation – if approved – by forwarding the confirmed DLC using SWIFT MT700/701 or MT710/711.

  During Handling of Documents

  • Approves or disapproves payment in response to discrepancies advised by Negotiating Bank – eventually after examining the forwarded documents.

  During Execution of Payment

  • In the case the Transferring Bank, Reimbursing Bank or Issuing Bank is not paying as committed, the Confirming bank has to pay ass guarantor.
• Advising Bank – the bank advises (“receives”) the credit on behalf of (end) beneficiary, i.e. usually seller’s bank.
  During Issuing the Credit
  • Accepts or rejects the DLC by replying the Transferring Bank or Issuing Bank by SWIFT MT730.
  • Advises (notifies) the Beneficiary.
• Nominated/Negotiating Bank – the bank to accept/approve/negotiate drawing of payment from the DLC upon presentation of documents, i.e. usually seller’s bank.
  During Handling of Documents
  • Gets the documents for payment from the Remitting Bank – if not same bank.
  • Examines the documents and concludes if discrepant or non-discrepant.
  • Advises the Confirming Bank, Transferring Bank, Issuing Bank and/or Advising Bank of the result of evaluation of the documents provided:
    • By MT754 if documents presented comply with the requirements of the DLC for payment.
    • By MT750 if documents presented are discrepant from the requirements of the DLC.

  During Execution of Payment

  • Pays the End Beneficiary.
• Remitting Bank – the bank to collect (“recieve”) the documents required to draw payment from the DLC, i.e. usually seller’s bank.
  During Handling of Documents
  • Collects the documents from the end Benificiary.
  • In the case where Remitting Bank and Negotiating Bank are not the same: Sends the documents by courier to Negotiating bank.
• Beneficiary – the party/parties to get paid from the DLC. If transferable DLC, the 1st beneficiary is the reseller, and the 2nd beneficiary is the seller or similar. One DLC can have several primary or secondary beneficiaries.
  During Issuing the Credit
  • Gets advise from Advising Bank on the DLC being received.

  During Handling of Documents

  • Presents documents to Remitting Bank.

  During Execution of Payment

  • Gets paid by the Nominated Bank.

Note when using DLC:

• A DLC at Sight is acting both as guarantee and payment as an irrevocable instrument for future payment aganist presentation of specified documents listing specified information/values.
• A Revolving DLC requires credit line for the accumulated value of all possible drawings, i.e. full contract value.
• The (Negotiating) bank does not verify or validate the authenticity of the documents or the statements therein. The examination and conclusion from the banks are solely based on the documents presented without examining the reality of the physical world. If the documents have not obviously been tampered or are fraudulent, the documents will be accepted as genuine as basis for legal payment.
• Unless discrepancies are explicitly allowed, all and any deviation from conditions outlined in the DLC will permit all and any of the guarantors to refuse drawing – both in regards to documents not complying in any sense with the requirements listed, down to spelling errors (unless explicitly accepted) and to deviation in form of missing drawings from a revolving DLC or attempts to draw less than outlined within the acceptable tolerances.
• A DLC is a bank to bank guarantee, not an account to account guarantee, i.e. the banks are accountable for payment and not as such the account holder.
• Drafting a DLC is a job for experts. Minor errors might jeopardize the credit completely resulting in lack of payment for the service or goods supplied.

A Standby Letter of Credit (SBLC) or Bank Guarantee (BG) is usually the SWIFT message MT760, which is a free text message format. SBLC using MT700/701 or MT710/711 (third party bank) is also possible. Most of the technicalities in issuing and executing a SBLC/BG are the same as for Documentary Letter of Credit (see below). In the USA banks are not allowed to work with bank guarantees (BG).

The major difference between Documentary Letter of Credit and Standby Letter of Credits or Bank Gaurantee is that SBLC and BG are no payment instrument, but a “default” guarantee only to be executed in the event that the payment is not being executed as agreed upon. The typically way to do the actual payment is by T/T (MT103). That is the reason why a SBLC or BG will almost never be revolving; instead the SBLC or BG is open for the full contract term and the contract will simply be terminated if the SBLC or BG is being drawn (to the full extend of the value of the guarantee).

SBLC and BG have the advantage over DLC that the value is usually only for one (months) shipment and therefore requires much less credit line than a revolving DLC, which requires credit line for the full contract value. But of course this also makes the SBLC or BG a weaker guarantee for continued executing of the contract in favor of the seller/supplier.

Same a DLC might be transferable a SBLC or BG might be transferable. However, as being a guarantee and not a conditional payment instrument the banks are much more unlikely to accept the status of being transferred as the same as the transferring bank cannot be held countable for the guarantee.

A T/T by MT103 is a SWIFT message transferring money from an applicant in one bank to a beneficiary in another bank; usually from an account in the first bank to an account in the other bank; however it is also possible to transfer money using MT103 without the applicant nor the beneficiary holding accounts in the involved banks; in this case the transfer of money is very similar to transfer of money by ex. Western Union, i.e. from a sender to a receiver without any relation with Western Union in general.

Note that MT103/23 Conditional means that the MT103 has an active article 23 specifying the required identification of the beneficiary. Conditions in regards to presentation of (other) documents than documents identifying the beneficiary is NOT possible using MT103 but requires the use of Documentary Letter of Credits (see above).

T/T by SWIFT MT103 payment is usually executed in one of two ways:

• Advance Payment. Buyer pays full or partial payment upfront in advance to the seller. Of course this payment method is more risky for the buyer than DLC or SBLC+TT and is ONLY recommended for existing customers. However, advance payment in full or partial form will typically make it possible for the seller to offer the buyer a further discount.
• Cash against Documents (CaD). Seller sends by courier the shipping documents or other agreed documents to buyer – in original or copy as agreed upon – and buyer responds by instructing buyer’s bank to transfer the payment from buyer’s account to seller’s account using SWIFT MT103.

Irrevocable Conditional Bank Pay Order (ICBPO) is a setup used to deposit money on an account – for a purchase or different – and to be released when specified conditions are met, i.e. typically presentation of specific documents.

An ICBPO is typically used to deposit money for a purchase by buyer in seller’s bank. An ICBPO is more safe for the seller than DLC or SBLC+TT, but more risky for the buyer, but less risky for the buyer than paying the seller upfront in advance. An ICBPO gives the seller advantages in regards to monetizating of the payment instrument, which might making it possible for the seller to offer the buyer a further discount over DLC or SBLC+TT payment.

Certificate of Origin (CoO) is issued by Chamber of Commerce (or other valid authority) of the country of origin certifying the origin of the goods, any parts thereof and any component being part of the goods whether being altertered or processed in the preparation of the final goods. It does not certify the origin of the material being used in the preparation that is not part of the final product; for example fuel being used for powering the machinery or the labor actually preparing/producing the goods.

For a product to “originate” from a specific country all components as part of the final product must originate from that country and all parts must have been prepared/produced in that country. Otherwise the CoO will state that the product has been “assembled” only but not produced in that country. Or the CoO will state that for instance the Sugar has been refined in Brazil based on Canes from Venezuela.

Certificate of Quality & Quantity (Q &Q) is issued by SGS (or similar) based on inspection of the shipment as the shipment is handed over from the consigner to the freight forwarder and includes a Certificate of Analysis and a Certificate of Weight together with a visual description of the skipment and the loading process certifying the conditions, quantity and quality of the goods when handed over to the freight forwarder.

Certificate of Analysis (CoA) or Certificate of Quality is certifying the chemical composition of the commodity in regards to the listed parameters for analysis. The analysis is done by SGS contracted laboratory.

The CoA is issued by SGS or similar based on samples taken by SGS etc. or upon samples forwarded to SGS etc. The CoA will indicate how many samples have been taken and the size of each sample.

Certificate of Weight (CoW) or Certificate of Quantity is certifying the weight of the shipment. The CoW is usually issued by SGS or similar based on inspection of the shipment.

The methodology for certifying the weight will depend on the shipping mode. If the shipping mode is containers then the measurement of weight will be conducted by weighing the containers before and after loading of the commodity into the container.

If the shipping mode is bulk shiploads the measurement of weight will be conducted by weighing the bags or big bags. The Certificate of Weight will indicate if all units have been measured or the total weight is an estimate made on samples and calculations.

A Loading Certificate or Inspection Report is issued by SGS or similar and typically includes:

• A thorough check of the overal appearance of the cargo and any packaging.
• Verification that all sugar is being loaded by checking the number and size of each part of the shipment against the contract.
• Ensuring that proper handling procedures are followed during loading.
• Ensuring that the transport medium is clean and sanitary.
• Ensuring that the shipment is adequately stowed and secured, and that it is protected from the elements.

The Loading Certificate provides the buyer with peace of mind that not only was the sugar in good condition when it left the mill or warehouse, but that it was handled properly prior to shipping. It is also important from the seller’s perspective that a Loading Certificate be obtained as it is additional proof in case of mishap in transit that all due care was taken to ensure successful delivery to the buyer.

The Allocation Commitment Letter for Brazilian sugar is issued by the Chamber of Commerce of Brazil. This is the official confirmation that the allocation is dedicated and belongs to the buyer. For same reason it is prohibited by law to issue the Allocation Commitment Letter without a (non-operative) guarantee for the payment.

In the past a lot of futures were sold twice or more based on intensions from the buyers. This way the value of the Allocation Commitment Letters was jeopardized by “good intensions” that were never executed in real life. By end of day the Allocation Commitment Letters the same way ended up as “intensional”.

Today, this has all changed; today, the Allocation Commitment Letter is a true commitment. And ONLY the Chamber of Commerce of Brazil is entitled to issue such. The Allocation Commitment Letter is the ONLY genuine and real Proof of Product for futures in sugar.

EUR1 Certificate is a certificate based upon treaties between EU and third countries giving reduced customs duties when importing to EU. To obtain a EUR1 certificate for a specific shipment the producer or shipper must be able to prove the origin of the goods by providing a valid Certificate of Origin certifying the full and true origin of the goods to be the country of which the EUR1 Certificate is issued for (cf. Certificate of Origin above).

Note that EUR1 is not by automatic the same as duty free import to EU; the level of customs duty fee reduction depends on the specific agreement between the country of origin and EU. The treaties regulation the EUR1 are named GSP – Generalized System of Preferences. You can find a list of countries with a GSP agreement with the EU here. EUR1 is not available from Brazil.

T2L Certificate is a certificate certifying free circulation within the EU member states. It implies that import duties have been fully paid and import permission to EU been granted.

Obtaining import permit to the European Union is a quite complex process based on three sets of requirements:

1. HACCP – Hazard Analysis and Critical Control Points, which is a system focusing on analysis to risk factors and self-control, which must be fully documented all the way back to the production and approved by food and/or health authorities of the country of import
2. EU legislation on limit values to parameters of the chemical composition; the EU limit values apply to all member states
3. Additional requirements outlined in national legislation of each member state. In some cases it will be easier to acquire an import permit in one EU member state compared to others, and then acquire a T2L certificate for free circulation.

The customs rules for import of Sugar to EU are quite complex and depends on the specific kind and quality of sugar and the country of origin.

• The general tariff code for refined sugar cane is 17 01 99 10 20 and the import duty is €419/MT.
• Importing raw cane has the tariff code 12 12 93 and the import duty of €46/MT.
• The tariff system for raw and semi refined sugar is too complex to (try to) explain here.

SugarCanePro ONLY offers sugar with EU community status for free circulation (T2L) on special offers. Unless the specific offer clearly in written states that SugarPro is involved in the import to EU, SugarPro cannot under any circumstances be held liable for the importers posibility or ability to acquire the required import permission, and SugarPro cannot under any circumstances be held liable for which import duties are to be paid.

Unless stated differently in the written offer from SugarCanePro, SugarCanePro ONLY facilitates supply of sugar on CIF terms, which cf. INCOTERMS 2010 implies that the responsibility of taking the sugar into EU starts by unloading the vessel is the entire and solely responsibility and liability of the consignee and buyer. Any costs related to the eventual failure to legally import sugar supplied by SugarCanePro or associates entirely and solely to be covered by the buyer and/or the buyer’s associates.

Phytosanitary Certificate of no radiation, no virus, no insect parts, no poisonous matter and nongenetic and is suitable for human consumption.

A Non GMO Certificate certifies that the sugar originates from Cane Crops not generically manipulated or changed.

The Invoice is issued from the seller to the buyer:

• Date of Issue
• Name of Seller
• Name of Buyer
• List of products being shippent with quantity, unit price and sub total
• Invoiced total
• Eventual tax or duty to be pre-paid by the seller
• Freight cost – if not included in the unit price
• Payment terms, incl. credit period

A Proforma Invoice (PI) is issued prior to the actually shipping of the goods for the purpose of the buyer to acquire the needed credit or payment instrument from bank or to obtain a estimate or pre-commitment from the customs for the import/export duties to be paid.The Commercial Invoice (CI) is issued when the shipment is ready to ship from the premises of the seller

The Clean on Board Bill of Lading is issued by the freight forwarder (logistics company, shipping company, carrier or transporter) and confirms the specification of the shipment received:

• Date of Issue, i.e. the date the freight forwarder received the shipment
• The Content (in descriptive words what it is)
• The Quantity, i.e. weight and/or volume)
• The Consigner (the shipper)
• The Consignee (the legal recipient of the shipment)
• The place (port of loading) of handing over the shipment to the freight forwarder
• The place (port of destination) of handing over the shipment to the (legal) recipient
• The terms of carriage, i.e. the liability of the forwarder
• The value of the shipment
• Eventually the cost of transport
• Any eventual conditions for handling over the shipment to the consignee, ex. requirements to identification

• If the Bill of Lading is “negotiable”, it enables the holder of the Bill of Lading (i.e. the legal recipient of the shipment if not stated differently) to modify the point of destination after the shipment has been handed over to the transporter.
• By default a Bill of Lading is “non-negotiable”, i.e. the point of destination may not be altered after the goods have been handed over to the freight forwarder.

Note that the consigner and/or the consignee might be different from the actual seller/buyer of the goods – for different reasons.

The Insurance Policy is a certificate issued by the insurance agency stating the coverage and terms of insuring the cargo. Usually the coverage will be 110% of the invoiced value of the cargo. Presentation of a pre-paid Insurance Policy will usually be a condition in the Documentary Letter of Credit for payment.

A packing list is simply a document which outlines the quantity and type of product shipped. This document is normally very detailed. In order for the seller to obtain payment it is important that the packing list is identical to the terms of the contract and those set out in the letter of credit.

A Stowage Plan is a document issued by the shipping company outlining the disposition of how the vessel is loaded, i.e. where which (part of the) shipment is location on the vessel, for instance where a specific container is location on the vessel.

A certificate of radiation certifies that the shipment is within internationally acceptable radiation levels.

A crop certificate states the crop from which the sugar was produced. This allows the sugar to be traced right back to the exact point of its origin where it was grown.

A shipping company statement relates to the ship aboard which the sugar will travel. It normally states that the ship is of a certain age, and that it is well maintained. This document is designed to provide assurance that the vessel is sea worthy.

International Maritime Organization is an organization under the United Nations. The IMO’s primary purpose is to develop and maintain a comprehensive regulatory framework for shipping and its remit today includes safety, environmental concerns, legal matters, technical co-operation, maritime security and the efficiency of shipping.

An IMO Number is a unique vessel identification number issued by IMO. The number starts with “IMO” followed by a number of digits.