What is the Letter of Intent (LoI)?

An LOI (Letter of Intent) is not a contract. Letters of intent serve to notify the seller that the buyer wishes to enter into negotiations to purchase. They do not contractually oblige either the buyer or the seller to go through with the trade.

Letters of intent should be regarded only as an opening point. Issuing an LOI does not make the buyer culpable for anything written in it. Until a contract is agreed upon and signed, both parties are free to back out of negotiations at any time, and buyers cannot be held liable for statements made in the LOI.

Sample: Letter of Intent

What is the Soft Corporate Offer (SCO)?

Based on the Letter of Intent, a Soft Corporate Offer is issue by the Seller - on the company’s letterhead - expressing product specifications as well as the terms and conditions of the transaction. SCO furnishes a prospective buyer with enough understanding of a seller's modus operandi. It gives room to the buyer for negotiation as a buyer might request an alteration of terms and conditions. Generally, SCO is preferred in the import/export business involving commodity sales.

Upon receipt and acceptance of the Soft Corporate Offer (SCO), the Seller will be informed about the Buyer’s coordinates and after that, Seller issues a Full Corporate Offer (FCO) including full coordinates (registered address, plus office address (if different) plus phone, fax, corporate email), of the Bank’s recognized Seller, Company registration number of the Seller entity, Seller Code, Signature and Seal of the Seller matching signature of passport and if possible a copy of the Registration document properly addressed to the Buyer with corresponding Fee Agreement, draft Sales & Purchase Agreement and Seller lawful signatory’s full size color passport copy.

SCO Validity

SCO validity is 7-14 days from the date of issue. If the Buyer agrees to the SCO, He/She will be required to provide his complete coordinates/details in order for the Seller to issue Full Corporate Offer directly to the Buyer.

Sample: Soft Corporate Offer

What is the Full Corporate Offer (FCO)?

Upon the acceptance of the SCO, the FCO issue by the Seller - on the company’s letterhead - addressed specifically to the Buyer, expressing product specifications as well as the terms and conditions of the transaction. An FCO is not “full” without being addressed to the name of a specific party representing a buyer.

The offer must curtail information such as:

1. Name of commodity


2. Quantity


3. Discharge port and type of shipment


4. Price


5. Origin


6. Type of payment accepted


7. Procedure to purchase the product, and more

What is Irrevocable Corporate Purchase Order (ICPO)?

ICPO is a document drawn up by commercial buyers. The buyer sends ICPO and a soft offer to the Seller (CIS Corporate Banking) enabling a soft probe by the seller

It contains:

1. The Seller issues and delivers to Buyer four (4) copies of a signed Purchase and Sale Agreement; the Buyer signs and returns two (2) copies to Seller.


2. Once submitted to the Vendor, it is deemed to be binding and the  Corporation is obliged to complete the sale.


3. The Seller supplies directly to Buyer evidence of legal ownership, current Assay Report, current Bank Statement and/or any other documentation that may be required by the Buyer to qualify the Seller’s offer. A Letter of Readiness (LoR), issued by the Seller’s bank and addressed to the Seller, is compulsory.

What is the Irrevocable Master Fee Protection Agreement (IMFPA)

Buyers and sellers sign the base contract and NCNDA / IMFPA via email, which will be considered legally binding, each will submit contracts to their banks

IMFPA

is a critical document that outlines the obligations and commitments of various parties involved in a transaction. The IMFPA (Irrevocable Master Fee Protection Agreement) is a type of contract used in international trade to protect the fee (commission) of the intermediary (Broker) who mediates in transactions, mainly for the purchase of commodities or merchandise negotiated in bulk such as food, raw materials, minerals, etc. The fee of the broker is only paid, either for the buyer or the seller or both, when the transaction is completed and the commission is automatically transferred from the buyer´s or seller’s bank account to the broker's account.

The Buyer responds with a signed and sealed Letter of Intent (LOI), properly addressed to the Seller, with a Buyer’s Code indicating procedures for acceptance and a separate IMFPA for Buyer’s side intermediaries and Mandates

NCNDA

The NCND Non-Circumvention & Non-Disclosure Agreement is a type of contract used by Intermediaries of international trade to protect the commissions due for the services provided to its clients: promotion of business, putting into contact with third parties, assistance in the contract negotiation and during the performance of the contract.

The NCND Contract is divided into two parts:

Part A: Special Conditions, setting out the terms that are special to a particular NCND agreement, and which must be filled in by the parties according to their particular needs, and;

Part B: General Conditions, setting out standard terms common to all contracts incorporating the ICC General Conditions for Non-circumvention & Non-disclosure Agreements.

The Parties that sign the Contract should use both Parts: articles in Part A require a choice between different alternatives (checking the box in each section); articles in Part B are standard conditions that complete Part A.

This model contract is used mainly for the intermediation of trade operations of different products (food, raw materials, and minerals) that are sold in large quantities as well as industrial products (machinery) and services of high a price.

Sample: IMFPA Agreement

Sample: NCND Contract

What is the Invoice?

A commercial invoice is a contract of sale or a transaction of sorts between the shipper and the receiver. It provides key information for customs to clear your goods and determine any government charges such as duties and taxes.

Seller issues Commercial Invoice or Proforma Invoice and Buyer responds by issuing irrevocable, auto Revolving IRDLC – SBLC – BG revolving for per shipments

Sample: Commercial Invoice

What are the types of Payment Promises IRDLC – SBLC – BG

Upon issuing the Commercial Invoice or Proforma Invoice by the Seller, the Buyer responds by issuing irrevocable, auto Revolving IRDLC – SBLC – BG revolving for per shipments.

Bank Guarantee

The guarantee is issued upon receipt of a request from 'applicant' for some purpose/transaction in favour of a 'Beneficiary'. The 'issuing bank' will pay the guarantee amount to the 'beneficiary' of the guarantee upon receipt of the 'claim' from the beneficiary.

Letter of Credit

Letters of Credit (LC) are widely used in international practice for convenience of international trade transactions and elimination of possible risks.

Due to frequent usage within the international collaboration, the names of LC types are given in English as well.

Types of Letter of Credit

1. Irrevocable LC. This LC cannot be cancelled or modified without consent of the beneficiary (Seller). This LC reflects absolute liability of the Bank (issuer) to the other party.

2. Revocable LC. This LC type can be cancelled or modified by the Bank (issuer) at the customer's instructions without prior agreement of the beneficiary (Seller). The Bank will not have any liabilities to the beneficiary after revocation of the LC.

3. Stand-by LC. This LC is closer to the bank guarantee and gives more flexible collaboration opportunity to Seller and Buyer. The Bank will honour the LC when the Buyer fails to fulfill payment liabilities to Seller.

4. Confirmed LC. In addition to the Bank guarantee of the LC issuer, this LC type is confirmed by the Seller's bank or any other bank. Irrespective to the payment by the Bank issuing the LC (issuer), the Bank confirming the LC is liable for performance of obligations.

5. Unconfirmed LC. Only the Bank issuing the LC will be liable for payment of this LC.

6. Transferable LC. This LC enables the Seller to assign part of the letter of credit to other party(ies). This LC is especially beneficial in those cases when the Seller is not a sole manufacturer of the goods and purchases some parts from other parties, as it eliminates the necessity of opening several LC's for other parties.

7. Back-to-Back LC. This LC type considers issuing the second LC on the basis of the first letter of credit. LC is opened in favor of intermediary as per the Buyer's instructions and on the basis of this LC and instructions of the intermediary a new LC is opened in favor of Seller of the goods.

8. Payment at Sight LC. According to this LC, payment is made to the seller immediately (maximum within 7 days) after the required documents have been submitted.

9. Deferred Payment LC. According to this LC the payment to the seller is not made when the documents are submitted, but instead at a later period defined in the letter of credit. In most cases the payment in favor of Seller under this LC is made upon receipt of goods by the Buyer.

10. Red Clause LC. The seller can request an advance for an agreed amount of the LC before shipment of goods and submittal of required documents. This red clause is so termed because it is usually printed in red on the document to draw attention to "advance payment" term of the credit.

What is the Performance Bond (PB)?

Upon issuing the LC/BG by the buyer, the Seller responds by issuing 2% PB

A performance bond is a financial guarantee that the terms of a contract will be honored. If one party to a contract cannot complete their obligations, the bond is paid out to the other party to compensate for their damages or costs. The Miller Act instituted the requirement of placing performance bonds.

Performance bonds are contracts involving three entities – the obligee (customer assigning the job), the principal (contractor doing the job), and the surety (financial entity issuing the bond). As the name implies, the bank guarantees that a borrower will fulfill its obligations to a contractor with bank guarantees.

Advantages and Disadvantages of a Performance Bond

Performance bonds protect the contracting party in the event that their contractor may become insolvent or otherwise unable to meet the terms of a contract. If the costs of completing the project overrun their projections, the obligee will not be responsible for the additional expenses. This reduces the risk for developers or other companies when they engage in large-scale construction projects.

However, there are some risks to consider. The surety may attempt to argue that the obligee did not comply with all the requirements of the bond in order to deny payment. Or, they may try to get the obligee to settle on a lesser amount.

Moreover, it is up to the obligee to calculate the financial cost of a failure by the contractor. If the obligee underestimates the cost of non-performance, they will have to absorb those extra costs on their own.

Seller sends to buyer the cargo documents

What are the Cargo Documents?