What payment instruments do
In international fuel trade, neither side trusts the other to pay/deliver first. The payment instrument inserts a tier-1 bank between them, conditionally guaranteeing performance.
DLC — Documentary Letter of Credit
Buyer's bank issues a credit drawable by the seller against presentation of conforming shipping documents (BoL, COA, Q&Q certificate, certificate of origin). Seller is paid when documents are presented to the seller's bank, regardless of whether the buyer has yet received the cargo.
Risk to buyer: documents can be conforming on paper but the underlying product is off-spec. Mitigated by detailed document requirements in the L/C.
When to use: standard international trade with established shipping flow, typically CIF/FOB.
SBLC — Standby Letter of Credit
Buyer's bank issues an instrument that is only drawable if the buyer fails to pay under the SPA. It is a backup, not a primary payment route. The primary route is wire transfer; the SBLC is the seller's safety net.
Risk to seller: SBLC fraud (instruments issued by sham banks). Mitigated by accepting only Tier-1 issuing banks and verifying via SWIFT MT799.
When to use: TTO and short-cycle deals where wire is fast and SBLC backstops.
MT103 / TT wire
Direct bank-to-bank transfer. Fast (same-day or next-day). No intermediate bank guarantee.
When to use: TTO transactions where dip test confirms product before payment is sent. Most spot transactions in major hubs use this model.
Escrow
A neutral third party (lawyer, escrow agent, or escrow bank) holds the funds and releases them on agreed conditions. Less common in commodity trade but used for large one-off transactions.
What sellers and buyers typically push for
Sellers prefer DLC (paid against documents, fast settlement). Buyers prefer SBLC + wire (pay only what is verified). The SPA negotiates which side wins, often based on volume and relationship.
Red flags
- Counterparty insists on payment instrument from a bank you cannot verify
- "MT760 unconditional" requested upfront — this is not how legitimate trade finance works
- "Pre-advice" demanded before SPA signing — almost always fraud
When in doubt, ask your bank's trade finance desk before agreeing.
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