Transaction procedure in transit trade (step by step)
I. Transaction parties:
- Seller (target Supplier);
- Middleman (as the Importer in the relation to target Supplier and as the Exporter in the relation to final Purchaser);
- Buyer (final Purchaser).
II. Transaction procedure:
Step 1. Letter of Intent - LOI
- Middleman finds interesting potential suppliers of the goods and sends the Letter Of Intent (LOI) to purchase the goods presenting their conditions of purchase.
Step 2. Soft Corporate Offer - SCO
- Potential Seller (target supplier) or Seller Mandate sends Soft Corporate Offer (SCO).
- Middleman as the Importer (in the relation to the potential Seller) issues an LOI to sale of the goods to interesting Buyer (final Purchaser).
Step 3. Irrevocable Corporate Purchase Order - ICPO
- After acceptance of the proposed LOI conditions, the Buyer sends Middleman confirmed LOI (including bank details) and issues Irrevocable Corporate Purchase Order (ICPO), in the accordance with the LOI conditions, treated as Soft Corporate Offer (SCO) of the Middleman.
- Middleman confirms a LOI of the Seller`s, and ICPO of the Buyer.
Step 4. Full Corporate Offer - FCO
- Seller issues a Full Corporate Offer (FCO) and a brief Company description.
- Middleman confirms FCO and issues Irrevocable Corporate Purchase Order (ICPO) and a Bank Comfort Letter (BCL).
Step 5. Draft Contract
- Seller (target Supplier) sends Draft Contract for negotiations.
- Seller as Exporter and Middleman as Importer, after negotiations of the Draft Contract, sign and seal the Sale and Purchase Agreement (agreed Contract), exchanging the electronically copies.
Step 6. Proof of Funds - POF
- The Bank of the Middleman within 3 (three) working days provides to the Bank of Seller the Proof of Funds (POF).
Step 7. Proof of Product - POP
- The Bank of Seller within 3 (three) working days provides via SWIFT MT799 to the Bank of the Middleman the confirmation of the possessing of Proof of Product (POP) issued to the name of the Seller and the readiness to issue the Performance Bond (PB), as bank demand guarantee (2% – two percent of the value of the Contract).
- The Bank of the Middleman within 3 (three) working days after receipt of SWIFT MT799 establishes a no operative, agreed by the Contract Parties instrument of payment [T/T, MT 103/23, Transferable (Revolving), Confirmed Documentary Credit, Standby Letter of Credit or Bank Demand Guarantee], in the accordance with the conditions of Sale and Purchase Agreement.
- Middleman issues FCO in full accordance with the conditions of the Buyer`s (final Purchaser) ICPO.
- The Buyer confirms Full Corporate Offer (FCO) and acceptance of the Middleman`s procedures and willingness to work 100% strictly according to the Middleman’s procedures incorporated on the ICPO.
- The Buyer signs and returns FCO with endorsed FCO Acceptance Form.
- The Middleman confirms signed FCO, endorsed Acceptance Form send by the End Buyer.
Step 8. Draft Contract
- The Middleman issues Draft Contract and sends it to the Buyer, Buyer returns the Draft Contract, with his suggestions.
- The Middleman and End Buyer sign and seal the final form of the Contract, exchanging the electronically copies.
- The Bank of the Buyer within 3 (three) working days provides to the Bank of Middleman`s the POF.
- The Bank of the Middleman within 3 (three) working days provides via SWIFT MT799 to the Bank of Buyer the confirmation of the possessing of POP issued to the name of Middleman.
- The Bank of the End Buyer within 3 (three) working days from receipt of SWIFT MT799 establishes an agreed by the Parties instrument of payment in favour of the Middleman [ for example establishes a no operative Transferable, Confirmed (Revolving) Documentary Letter of Credit].
- The Middleman within 3 (three) banking days after the receipt of the no operative Letter of Credit (L/C), signs and seals the 6 (six) hard contract copies and send to the End Buyer, who countersigns and returns 3 (three) copies back to Middleman.
- The Middleman and the Buyer lodge the contract in their banks.
- The Middleman and the Seller (Supplier of goods) lodge the hard copies of the Sale and Purchase Agreement, issued, signs and seals in six originals (three copies for each of the parties) in their banks. The Bank of Buyer activates the L/C.
- The Middleman after receipt of the advice from the issuing L/C Bank of the Buyer (SWIFT MT700 – issuing of the transferable L/C in favour of the Middleman), instruct his bank to transfer of the letter of credit to the Seller, as supplier of the goods (SWIFT MT720).
- The Seller informs the Middleman about the readiness for shipments.