How to verify an LOI (letter of intent) in commodity trading
By the Vanguard Verify desk · Published 2026-10-24 · Updated 2026-10-24
Short answer: an LOI (letter of intent) is usually a buyer's written statement of interest in a commodity on stated terms. It is normally not a payment instrument and may or may not be legally binding depending on its wording and the governing law. Verify it by confirming the issuing company in an official register, contacting the signatory through independently found details, and checking that the terms are realistic.
In brokered commodity chains the LOI often comes first, followed by the seller's offer (SCO or FCO), the buyer's ICPO and then the contract (SPA). Many LOIs are forwarded through several intermediaries, so the document in your inbox may be far removed from the company named on it.
Step by step
- Identify the issuer. Find the full legal name, registration number and address on the letterhead. Search the official company register in that country. See is this company real? how to check.
- Check the LEI, if one is quoted. Compare the GLEIF record with the letterhead. See LEI lookup.
- Confirm the signatory. Contact the company through its official website or switchboard (not the phone number on the LOI) and ask whether the person exists and is authorised.
- Check the email domain. The LOI should come from the company's own domain. Free email accounts and look-alike domains are common in forwarded offers.
- Read the terms. Product specification, quantity, delivery term (Incoterm and named port), price basis, payment instrument and validity date.
- Check whether it is binding. Look for wording such as "non-binding" or "subject to contract". Under the UN Convention on Contracts for the International Sale of Goods (CISG), where it applies, a proposal sufficiently definite and showing intent to be bound can be an offer — so wording matters. Ask a lawyer if in doubt.
- Move to proof. A serious buyer will show bank-backed proof of funds (POF) at the agreed stage; a serious seller will show proof of product (POP).
LOI vs other deal documents
| Document | Usually issued by | Purpose |
|---|---|---|
| LOI | Buyer | States interest and indicative terms |
| SCO / FCO | Seller | Soft or full corporate offer |
| ICPO | Buyer | Irrevocable corporate purchase order |
| SPA | Both | The binding sale and purchase agreement |
See also how to verify an ICPO and how to verify an FCO.
Red flags
- The LOI is unsigned, undated or the company name is in the file name only.
- Huge monthly quantities over long terms (for example "12 months, rolls and extensions") from a company with no visible trade history.
- Payment terms that ask the seller to pay first, for example a performance bond before any contract.
- The buyer asks the seller for proof of funds, or the seller asks the buyer for proof of product — the roles are reversed.
- The same LOI text circulating with different company names.
- Requests for "LOI processing" or "registration" fees.
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FAQ
Is an LOI legally binding?
It depends on the wording and the governing law. Many LOIs say they are non-binding, but a definite proposal showing intent to be bound can amount to an offer, for example under the CISG where it applies.
Who issues an LOI in commodity trading?
Usually the buyer, to state interest and indicative terms before the seller issues an offer.
Is an LOI the same as an ICPO?
No. An LOI states intent; an ICPO is presented as an irrevocable purchase order. Neither replaces a signed contract.
Should I pay a fee to receive or process an LOI?
Requests for fees to issue or register an LOI are a red flag. Verify the issuing company first.
Vanguard Verify is run by Vanguard Trade Capital Goods Wholesalers DWC-LLC, Dubai South, Licence 14282. This answer is general information, not legal or financial advice.