Letters of Credit Explained in Plain Language for Buyers & Sellers

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Decoding MT700: Step-by-Step Guide for Non-Bank Professionals

Letters of Credit explained in plain language for buyers and sellers of EN590, Jet A1, and other commodities.

Introduction — Why MT700 Matters

In international fuel trading, payment security is everything. The MT700 Letter of Credit (LC) is one of the most widely used instruments to guarantee payment between buyers and sellers.

Yet, for non-bank professionals, MT700 can seem like a maze of codes, conditions, and banking jargon. This guide breaks it down step by step so you understand what each clause means and how it impacts EN590 or Jet A1 transactions.

1. What an MT700 Letter of Credit Is

An MT700 LC is a bank-issued, irrevocable instrument that promises the seller will receive payment once they present compliant documents. It is commonly used in:

  • EN590 diesel deals
  • Jet A1 aviation fuel transactions
  • ULSD, FAME, and other refined products

Key points:

  • It is irrevocable — cannot be canceled without agreement.
  • It relies on document compliance, not physical inspection.
  • Protects both buyer and seller if used correctly.

2. Core Components of MT700

Every MT700 contains standardized fields. Here’s what you need to know in plain language:

  • Applicant: The buyer who requests the LC.
  • Beneficiary: The seller who receives payment.
  • Amount: Total value covered by the LC.
  • Currency: Usually USD, EUR, or agreed currency.
  • Expiry Date: Last day for presentation of documents.
  • Documents Required: Includes SGS / Intertek, invoice, bill of lading, packing list, etc.
  • Terms & Conditions: Defines acceptable presentation rules and deadlines.

3. How MT700 Works — Step by Step

  1. Buyer applies for LC: Buyer requests their bank to issue MT700 to the seller.
  2. Bank issues LC: Bank forwards MT700 to seller’s bank.
  3. Seller prepares documents: Documents must match LC exactly — spelling, dates, formats.
  4. Seller submits documents: To their bank for verification.
  5. Bank checks compliance: Bank reviews if documents meet LC conditions.
  6. Payment executed: If compliant, bank pays the seller; if not, buyer is alerted for correction.

Tip: Document compliance is everything. Even a small typo or missing field can delay or block payment.

4. Common MT700 Clauses Explained

  • “Sight Payment”: Payment is made immediately once documents are compliant.
  • “Usance” or “Deferred Payment”: Payment is made after a specified number of days post-document presentation.
  • “Partial Shipment Allowed”: Multiple shipments can be covered under one LC.
  • “Transshipment Allowed”: Goods can be moved via different ports if approved.
  • “Force Majeure Clause”: Protects both parties in case of uncontrollable events.
  • “Discrepancy Handling”: Specifies how banks handle minor mistakes in documents.

5. How Buyers Use MT700 Safely

Buyers must ensure:

  • Bank is reliable and experienced with commodity LCs.
  • All SPA terms are fully aligned with LC clauses.
  • Inspection reports (SGS/Intertek) meet LC requirements.
  • Delivery points (TTT, TTV, CIF) are clearly referenced.

6. How Sellers Use MT700 Safely

Sellers must ensure:

  • All documents match SPA and MT700 exactly.
  • Delivery schedule aligns with LC expiry.
  • Bank confirmation is verified before lifting.
  • Title transfer is executed per agreed terms.

7. Common Mistakes to Avoid

  • Relying on verbal confirmation instead of MT700 text.
  • Assuming SGS/Intertek inspection guarantees payment.
  • Submitting documents after expiry date.
  • Ignoring transshipment or partial shipment clauses.
  • Incorrectly filling dates, port names, or product specifications.

8. MT700 vs Other Instruments

Compared with MT199, MT760, or SBLC, MT700 is:

  • Used for payment assurance rather than guarantee of funds.
  • Highly document-driven.
  • Bank-dependent but not risk-free.

Understanding these differences prevents surprises and failed transactions.

FAQ — MT700 Simplified

  1. Can I issue an MT700 without a bank?
    No. It must be issued by a recognized financial institution.
  2. Does MT700 guarantee delivery?
    No. It only guarantees payment against compliant documents.
  3. Can SGS or Intertek reports substitute for MT700?
    No. They confirm product quality/quantity but do not trigger payment.
  4. What happens if documents have minor discrepancies?
    Bank may request correction, delay payment, or reject — depending on LC terms.
  5. Is MT700 the same for all products?
    Yes, the structure is standardized, but content varies by product and SPA terms.

Conclusion — Knowledge Is Payment Power

MT700 may look complicated, but it is fundamentally a document-driven payment promise. For non-bank professionals, understanding each clause, inspection requirement, and title transfer condition is the key to successful EN590 and Jet A1 deals.

Master MT700, align it with SPA and logistics, and you dramatically increase the chances of closing large-scale fuel transactions without surprises.

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