Commodities trading is a complex process that involves various steps to ensure a successful transaction between the buyer and the seller. In this article, we will provide a step-by-step guide to the sale process in commodities trading, using a typical procedure as an example.
Step 1: Buyer Issues an LOI
The first step in the sale process is for the buyer to issue a Letter of Intent (LOI) to the seller. This document expresses the buyer’s intention to purchase a specific commodity and setSale Process in Commodities Tradings out the terms of the proposed transaction, including the quantity and price of the commodity.
Step 2: Seller Issues an FCO
Upon receiving the LOI, the seller will issue a Full Corporate Offer (FCO) to the buyer. This document outlines the terms and conditions of the sale, including the price, delivery schedule, and payment terms.
Step 3: Buyer Returns FCO Signed and Stamped
If the buyer agrees to the terms of the FCO, they will sign and stamp the document and return it to the seller.
Step 4: Buyer Signs, Seals and Returns the Contract to Seller
The next step in the process is for the buyer to sign, seal, and return the contract to the seller. This document outlines the terms of the sale in detail, including the quantity, price, delivery schedule, and payment terms.
Step 5: Seller Signs the Contract and Returns it to the Buyer
After receiving the signed contract from the buyer, the seller will sign it and return it to the buyer.
Step 6: Buyer and Seller Deposit a Copy of the Signed Contract to their Respective Bank
Both the buyer and the seller will deposit a copy of the signed contract to their respective banks to ensure that the terms of the sale are legally binding.
Step 7: Seller Sends the Final Contract Signed and Sealed and Proforma/Invoice to the Buyer
After the contract is signed and deposited with the banks, the seller will send a final copy of the signed and sealed contract along with a proforma invoice to the buyer.
Step 8: Buyer Sends the Draft of the Verbiage of the SBLC (MT760) to the Seller
The buyer will then send a draft of the verbiage of the Standby Letter of Credit (SBLC) to the seller. This document is a guarantee from the buyer’s bank that they will make the necessary payments under the contract.
Step 9: Seller Sends the Draft of the Verbiage of the Performance Bond to the Buyer
The seller will send a draft of the verbiage of the Performance Bond to the buyer. This document is a guarantee from the seller’s bank that they will perform their obligations under the contract.
Step 10: Buyer’s Bank Sends the RWA/BCL to the Seller’s Bank
The buyer’s bank will then send a Bank Confirmation Letter (BCL) to the seller’s bank as proof of funds.
Step 11: Seller Issues POP from Seller’s Bank to Buyer’s Bank
After receiving the BCL from the buyer’s bank, the seller will issue a Proof of Product (POP) from their bank to the buyer’s bank.
Step 12: Seller Issues the SBLC (MT760)
Upon confirmation of the POP, the seller will issue the SBLC (MT760) as a guarantee of payment for the contracted goods.
Step 13: Monthly Shipments are Loaded and Payment is Made
After receiving the SBLC (MT760), monthly shipments of the commodity will be loaded and the corresponding payment will be made for each shipment against the remittance of documents via MT-103 bank transfer.
Step 14: Payment is Made within 72 Hours after SGS Control
Payments will be made within 72 hours after SGS control at the loading port. All documents related to the shipment will be sent to the seller’s bank for verification and payment release.
Step 15: Shipment is Initiated
After the payment is released, the seller will initiate the shipment of the commodity. The buyer’s bank will receive the shipping documents, which will be reviewed and approved by the bank. The approved documents will then be sent to the buyer.
Step 16: Delivery of Goods
Upon receiving the shipping documents, the buyer can take possession of the commodity. The buyer will then use the commodity for its intended purpose, such as in the production of animal feed, or for export to other markets.
Conclusion
The sale process in commodities trading involves various steps, including the issuance of an LOI, the issuance of an FCO, the signing of the contract, and the issuance of the payment instrument. In this article, we have provided a step-by-step guide to the sale process, highlighting the importance of each step in ensuring a successful transaction. It is essential for both the buyer and the seller to understand the process and follow it carefully to avoid any issues that could arise during the transaction. By following these steps, both parties can enjoy a successful transaction, resulting in the timely delivery of the commodity and payment.