MT700 Explained for Non-Bank Buyers

What sellers, refineries & banks actually check — and why your LC gets rejected.

Hidden buyer question:
“Why is my Letter of Credit refused?”

Introduction — The LC Myth That Destroys Deals

Many buyers believe that issuing an MT700 automatically makes them credible.

It does not.

In EN590, Jet A1, LNG, and bulk commodity trading, an MT700 is not a badge of seriousness — it is a technical exam.

Sellers, refineries, and banks do not look at your LC emotionally. They scan it for risk, errors, and structural weakness.

That is why a large percentage of MT700s are rejected within minutes.

1. What an MT700 Really Is (And What It Is Not)

An MT700 is a SWIFT message used to issue an Irrevocable Letter of Credit.

What it is:

• A bank commitment to pay against compliant documents
• A legal payment instrument governed by UCP rules
• A risk-transfer tool for seller and buyer

What it is NOT:

• Proof of funds
• A promise to buy
• A negotiable draft of terms
• A protection for buyers who don’t understand logistics

Banks don’t “approve deals”. They approve structures.

2. The First Check: Issuing Bank Credibility

Before reading your LC terms, sellers check:

• Is the issuing bank Tier-1 or Tier-2?
• Is it known in commodity trade?
• Is it acceptable to refinery compliance?

If the bank fails this test:

• The LC is rejected unread
• No amendments requested
• No explanations given

Reality:

A perfect MT700 from the wrong bank is worthless.

3. The Second Check: Structural Alignment with SPA

Your MT700 must mirror the SPA — exactly.

Sellers check:

• Product name & specification
• Quantity & tolerance
• Delivery method (TTT, TTV, CIF, FOB)
• Inspection authority & timing
• Title transfer point

Any mismatch signals:

“Buyer does not control their own transaction.”

Banks will not correct this for you.

4. The Third Check: Document Trap

Most MT700 failures happen here.

Buyers request:

• Impossible documents
• Non-existent certificates
• Contradictory inspection clauses

Common mistakes:

• Demanding SGS before title transfer
• Requesting refinery documents not issued under CIF
• Requiring documents banks cannot legally verify

Result:

LC is “unworkable” → rejected.

5. The Payment Clause That Kills Trust

Buyers often try to protect themselves by adding:

• Conditional payment language
• Open-ended inspection clauses
• Buyer-controlled triggers

To sellers, this means:

“Payment risk shifted entirely to seller.”

Serious sellers refuse immediately.

An LC must be:

• Clear
• Objective
• Document-driven

6. Why Amendments Don’t Save Bad MT700s

Buyers believe:

“We’ll amend if there’s an issue.”

Sellers hear:

“This buyer did not prepare.”

In reality:

• Refineries don’t renegotiate LCs
• Banks charge per amendment
• Each amendment delays lifting

Bad first MT700 = broken credibility.

7. The Real Reason Banks Push Back

When your bank hesitates, it’s not incompetence.

Banks reject MT700 requests because:

• The buyer cannot fund the LC
• The risk profile is unclear
• The structure exposes the bank legally

Banks are not your deal partners.

They are your risk auditors.

Seller Reality Check

Sellers do not ask:

“Can this buyer issue an LC?”

They ask:

“Will this LC pay cleanly without conflict?”

If the answer is not an immediate yes — rejection.

FAQ — MT700 Reality

1. Is MT700 mandatory?
   Often yes — but only if structured correctly.
2. Can MT700 replace trust?
   No — it replaces risk.
3. Why no feedback after rejection?
   Because sellers don’t educate buyers.
4. Can brokers fix LC issues?
   No — only structure can.
5. Is a refused LC recoverable?
   Rarely — credibility damage is real.

Conclusion — Why Your LC Is Refused

Your MT700 is not refused because sellers are difficult.

It is refused because it signals:

• Bank risk
• Operational confusion
• Inexperience

In commodities, payment instruments don’t create trust.

They reveal whether trust is justified.

If your LC keeps failing, the message is clear:

The deal is not bank-clean yet.