Anyone trying to buy diesel, urea or sugar online soon receives a "procedure": the buyer sends an LOI or an ICPO, the seller replies with an FCO, the buyer provides a POF, then an SPA is signed. The acronyms give an impression of seriousness. None of them is defined by any law or by the International Chamber of Commerce.
They are brokers' customs. Some of these documents commit you to nothing, others may commit you more than you think, and most mainly serve to collect your details. Here is what each acronym means, and what it really commits you to.
The acronyms, one by one
| Acronym | In full | Who sends it | What it is |
|---|---|---|---|
| LOI | Letter of intent | The buyer | A statement of interest in a product, volume and indicative price |
| ICPO | Irrevocable corporate purchase order | The buyer | A purchase order presented as firm, with product, quantity, price and terms |
| SCO | Soft corporate offer | The seller | An offer in principle, without commitment |
| FCO | Full corporate offer | The seller | A detailed offer: product, specification, quantity, price, delivery, payment, validity |
| POF | Proof of funds | The buyer | A bank letter or statement showing the ability to pay |
| RWA | Ready, willing and able letter | The buyer's bank | A letter stating that the client is ready and able to finance the deal |
| POP | Proof of product | The seller | Documents supposed to prove that the goods exist |
| NCNDA | Non-circumvention, non-disclosure agreement | The intermediaries | An undertaking not to bypass the intermediaries or disclose their information |
| IMFPA | Irrevocable master fee protection agreement | The intermediaries | An agreement setting the intermediaries' commissions |
| SPA | Sale and purchase agreement | Both parties | The real contract, the one that counts |
What these documents really commit you to
The name of a document does not decide its legal value. Its content does.
In the seventeen OHADA countries, the Uniform Act on General Commercial Law is clear. A proposal for a contract addressed to specific persons is an offer if it is sufficiently precise and shows the author's intention to be bound in case of acceptance. It is sufficiently precise when it designates the goods and fixes, even implicitly, the quantity and the price (article 241). The 1980 United Nations Convention on Contracts for the International Sale of Goods, the Vienna Convention, sets the same rule in its article 14.
In practice:
- A precise FCO can be a genuine offer. If it designates the product, quantity and price, and you accept it, a contract may be formed.
- An ICPO can bind you. A purchase order that fixes product, quantity and price, and calls itself "irrevocable" with a time limit, cannot be revoked during that time (article 242 of the Uniform Act, article 16 of the Vienna Convention). Do not sign an "irrevocable" document lightly.
- An LOI that states it is not binding remains a mere statement of interest.
- Silence is not acceptance (article 243 of the Uniform Act, article 18 of the Vienna Convention). Not replying to an FCO does not bind you.
Why these procedures so often serve scams
In fake offers of EN590 diesel, Jet A1 or urea, the same imposed procedure keeps coming back: ICPO, then POF, then various fees, before the buyer has been able to verify anything. It allows the fraudster:
- to harvest your information: your bank's name, account number, statements, signatures;
- to make you pay fees before you see the goods;
- to multiply intermediaries, each protected by an NCNDA and a commission, while nobody actually holds the product.
A proof of funds sent to a stranger is your banking position handed to someone you know nothing about.
The right way to proceed
- Verify the seller before any document: registration, address, references, existence of the stock with the terminal or warehouse.
- Ask for a precise written offer, with a validity period, before providing any banking information.
- Negotiate a sale contract directly: product, specification, quantity and tolerance, price and price formula, Incoterm, inspection, payment, transfer of title and risk, governing law and dispute resolution.
- Pay by documentary credit, against the documents set out in the contract, rather than by advance transfer.
- Show your financial capacity only through your bank, to a verified seller, when the credit is opened.
Our view
A serious trader or producer does not need an ICPO to make an offer. They ask who you are and what you want, and send you a price and a draft contract. A procedure in acronyms imposed upfront is rarely the sign of a great professional; it is often that of a chain of intermediaries with no goods.
Frequently asked questions
What does ICPO mean?
Irrevocable corporate purchase order, a purchase order presented as irrevocable. Depending on its content, it may be an offer to buy that binds the buyer.
What is an FCO?
A full corporate offer, the seller's firm offer, with product, specification, quantity, price, delivery, payment and validity period.
Is an LOI legally binding?
Generally not, especially if it says it is not. Its content, not its name, decides.
Should I send proof of funds to a seller?
Not before verifying the seller and receiving a precise offer. And preferably through your bank.
What is the difference between an FCO and an SPA?
The FCO is the seller's offer; the SPA is the sale contract signed by both parties, which sets out all the obligations.
What we do
GraceRoad does not ask for an ICPO or proof of funds to make an offer. You tell us what you need, we check feasibility, then we send you an offer and a draft contract. Payment is by documentary credit, against documents.
Read next: commodity scams in Africa: 12 red flags and payment terms in commodity trading: LC, SBLC, cash.
Sources: OHADA Uniform Act on General Commercial Law of 15 December 2010, articles 241 to 243; United Nations Convention on Contracts for the International Sale of Goods, Vienna, 11 April 1980, articles 14, 16 and 18.