The commodity deal flow is the structured sequence of steps a transaction moves through, from initial buyer-seller contact to final delivery and payment. Understanding this flow helps all parties know what to expect, what documents are needed at each stage, and how risk is managed throughout.
Step 1 — Initial Contact
The transaction begins when a buyer and seller (or their brokers) establish contact, typically after an inquiry about a specific commodity, quantity, and delivery location. At this stage, both sides exchange basic company information to confirm they are dealing with a legitimate, active counterparty before moving forward.
Step 2 — LOI (Letter of Intent)
The buyer issues a Letter of Intent outlining the product specification, required quantity, delivery terms, and target price. The LOI is not legally binding but signals genuine interest and gives the seller enough detail to assess whether they can fulfill the request.
Step 3 — ICPO (Irrevocable Corporate Purchase Order)
Once preliminary terms are acceptable, the buyer issues an ICPO — a firmer, irrevocable commitment to purchase under the stated conditions. The ICPO moves the transaction from expression of interest to formal intent to transact.
Step 4 — SCO / FCO (Seller's Offer)
The seller responds with a Soft Corporate Offer (SCO), a non-binding indicative offer, or a Full Corporate Offer (FCO), a firm offer with complete commercial terms — price, quantity, quality specification, delivery schedule, and payment terms. The FCO forms the commercial basis for the contract to follow.
Step 5 — NCNDA / IMFPA
Before commercial details are finalized, the parties — including any brokers or intermediaries involved — sign a Non-Circumvention, Non-Disclosure Agreement (NCNDA) and an Irrevocable Master Fee Protection Agreement (IMFPA). These protect confidential information, prevent parties from bypassing intermediaries, and secure the commission structure for everyone involved.
Step 6 — Due Diligence
Both sides conduct due diligence on their counterparty — verifying company registration, financial standing, KYC documentation, and trading history. For the seller, this confirms the buyer has the financial capacity to complete the purchase; for the buyer, it confirms the seller has genuine access to the product.
Step 7 — SPA (Sales and Purchase Agreement)
Once both sides are satisfied, they sign the Sales and Purchase Agreement — the definitive, legally binding contract that consolidates all agreed terms: specification, quantity, pricing formula, Incoterm, delivery schedule, payment instrument, inspection requirements, and dispute resolution provisions.
Step 8 — Payment Instrument
In line with the SPA, the buyer arranges the agreed payment instrument — commonly a Documentary Letter of Credit (DLC), Standby Letter of Credit (SBLC), or Telegraphic Transfer (TT) — and has their bank issue or activate it in the seller's favor, confirming the buyer's financial commitment before shipment proceeds.
Step 9 — Production / Allocation
The seller prepares or allocates the agreed quantity of product, whether by scheduling production, drawing from existing stock, or securing the cargo from a refinery, mine, or storage facility, in line with the delivery schedule set out in the SPA.
Step 10 — Inspection
An independent inspection agency — such as SGS, Intertek, Bureau Veritas, or Cotecna — verifies that the cargo matches the agreed quality and quantity specifications before it is released for shipment. Inspection certificates form part of the document set required for payment.
Step 11 — Shipping
The cargo is loaded onto the nominated vessel or transport in accordance with the agreed Incoterm. The seller and buyer's respective logistics responsibilities — freight, insurance, and risk transfer — are governed by the Incoterm specified in the SPA.
Step 12 — Shipping Documents
Following loading, the seller assembles the full set of shipping and commercial documents — Bill of Lading, Commercial Invoice, Packing List, Certificate of Origin, and inspection certificates — required for the buyer to take delivery and for the bank to process payment.
Step 13 — Final Payment
The seller presents the document set to their bank, which forwards it for examination against the terms of the Letter of Credit or other payment instrument. Once the documents are found compliant, payment is released to the seller, or the agreed payment mechanism is executed.
Step 14 — Delivery and Completion
The buyer receives the cargo and shipping documents at the destination, completing the transfer of title. Any remaining logistics steps — customs clearance, unloading, or onward distribution — are carried out according to the agreed Incoterm, and the transaction is formally closed.