ICPO vs LOI in Commodity Trading

Table of Contents

• What an LOI Actually Is
• What an ICPO Actually Is
• The Problem With the Word "Irrevocable"
• ICPO vs LOI Side by Side
• Where Each One Sits in the Deal Sequence
• What Actually Makes a Document Binding
• What Belongs in Each Document
• Red Flags Around Both
• How to Handle Them in Practice
• Frequently Asked Questions

What an LOI Actually Is

A Letter of Intent is a buyer's written statement that it wishes to purchase a commodity, usually setting out the product, an indicative quantity, a target destination and the delivery basis. It is the opening move. It tells a seller that a conversation is worth having and gives enough detail for the seller to decide whether to respond with a real offer.

In general commercial law an LOI is normally understood as a pre-contractual document. Most well-drafted ones say so explicitly, with a line stating that the letter creates no obligation to buy or sell and that the parties intend to be bound only by a subsequently executed agreement. Some clauses inside an LOI can still bite: confidentiality, exclusivity for a stated period, governing law and dispute resolution are routinely drafted to be binding even when the commercial terms are not.

That mixed character is the part traders miss. An LOI is not automatically harmless. If it contains an exclusivity undertaking and you then sign with another supplier, you may have breached the one part of the letter that was meant to bind you.

What an ICPO Actually Is

An ICPO, or Irrevocable Corporate Purchase Order, is a buyer's formal order document stating that the buyer is ready to purchase a defined quantity on defined terms, typically issued on company letterhead and signed by an authorised officer. It usually carries more detail than an LOI: exact volumes, contract duration for term deals, delivery port, Incoterms basis, target price or pricing formula, inspection requirements and the intended payment instrument.

An ICPO is a stronger signal than an LOI. A buyer who issues one is telling the market it has moved past exploration. But the strength is commercial, not legal. There is no body of rules governing ICPOs the way UCP 600 governs documentary credits or the Incoterms rules govern delivery obligations. The term grew out of trading practice, largely in the oil, metals and bulk agricultural markets, and every desk uses it slightly differently.

If you want the fuller treatment of the document on its own, see What Is an ICPO in Commodity Trading? and its counterpart What Is an LOI in Commodity Trading?.

The Problem With the Word "Irrevocable"

"Irrevocable" carries real weight in trade finance. An irrevocable letter of credit cannot be amended or cancelled without the agreement of the issuing bank, the confirming bank if any, and the beneficiary. That is a defined consequence under a defined rulebook.

An ICPO borrows the word and none of the machinery. No bank stands behind it. No rulebook defines what revocation would even mean. If a buyer who issued an "irrevocable" purchase order stops answering the phone, the seller's remedy is whatever contract law provides on the facts — and in the usual case, where no contract was ever concluded, that is nothing.

ICPO vs LOI Side by Side

Where Each One Sits in the Deal Sequence

There is no universal order, and anyone who tells you there is one is describing their own desk's habit. That said, a common shape in bulk physical trades runs like this:

1. Soft offer — the seller's indicative terms, subject to change and to product being available.
2. LOI — the buyer responds with interest and indicative requirements.
3. FCO — the seller issues a Full Corporate Offer with firm terms, usually with a validity date.
4. ICPO — the buyer accepts the shape of the offer and issues a purchase order against it.
5. Contract — a sale and purchase agreement is drafted, negotiated and executed.
6. Financial instruments — only now does a credit get opened or a performance bond get issued.

Plenty of real trades skip steps. Two counterparties who know each other go from enquiry to contract with nothing in between. A term supply deal may never see an ICPO at all. The sequence matters less than understanding that everything before the contract is conversation.

What Actually Makes a Document Binding

Whether a piece of paper creates obligations does not turn on its title. Broadly, across common law and civil law systems alike, you need the elements of an agreement: identified parties with authority to bind them, terms certain enough to enforce, an intention to create legal relations, and whatever formality the applicable law requires.

A document headed "Irrevocable Corporate Purchase Order" that leaves price open, says the deal is subject to contract, and is signed by someone without authority is not a contract. A short email that confirms product, quantity, price, delivery and payment, signed off by people who can commit their companies, may well be one. The heading is the least important thing on the page.

What Belongs in Each Document

A usable LOI states the buying entity and its registration number, the product and specification, an indicative quantity and delivery schedule, destination and Incoterms basis, the intended payment method, a validity date, and an explicit statement of whether anything in it is binding.

A usable ICPO adds the things a seller needs in order to commit tonnage: exact quantity per shipment and in total, the pricing basis or formula and the index if one applies, inspection and who appoints the surveyor, the payment instrument and the issuing bank's name, the target laycan, and the signature of someone whose authority you can check against the company register.

Notice what is not on either list: the buyer's full bank account numbers, scans of directors' passports, or a signed blank letterhead. None of those are needed to progress a trade, and all of them are routinely requested by people who are not trading.

Red Flags Around Both

• An ICPO demanded before the seller has shown any evidence of product. The order should follow the offer, not replace proof.
• A request for banking details "to verify the buyer's ability". Ability is shown by a bank-issued instrument, not by handing over account credentials.
• A chain of intermediaries who each need their own ICPO. Every extra hop multiplies the chance the document never reaches an actual seller.
• Templates that insist on a rigid procedure — "ICPO with full banking coordinates, then POP, then contract" — which exists to extract documents from you in a fixed order.
• Pressure on validity windows. Twenty-four hour deadlines on a multi-million dollar cargo are a manufactured urgency tactic.
• A bank comfort letter offered as proof of funds. It is a statement of opinion, not an undertaking to pay. See how to verify bank comfort letters.

The related pattern on the money side is covered in MT-103 Fraud: How Fake Proof of Funds Destroyed $40M in Deals, which is worth reading alongside this one, because forged proof of funds is usually what arrives next in these chains.

How to Handle Them in Practice

Treat both documents as what they are: a way of establishing that the person across the table is serious enough to spend time on. Then do the work the documents cannot do for you.

• Verify the entity first. Company registration, ownership, and whether the signatory is actually an officer. A document is only as good as the company behind it, which is why KYB comes before paperwork.
• Check the signatory's authority against the register, not against the signature block.
• Keep your own template so the fields you need are always present and the binding language is always explicit.
• Put a validity date on everything you issue, so a stale document cannot resurface months later.
• Move to contract quickly. The longer a deal lives in pre-contractual paperwork, the more likely it is not a deal.

Frequently Asked Questions

Is an ICPO legally binding?

In most cases, no. Despite the word "irrevocable" it is a trade-practice document, and unless it contains everything needed to form a contract and both parties intended to be bound, it creates no obligation to buy. Treat it as a strong statement of intent.

Which comes first, the LOI or the ICPO?

Usually the LOI, because it opens the conversation and the ICPO follows a firm offer. But there is no fixed rule, and many trades use one without the other.

Can a seller issue an ICPO?

No. A purchase order comes from the buyer. The seller's equivalent documents are the soft offer and the Full Corporate Offer.

Should I put my bank details on an ICPO?

No. Name the bank you intend to use if the seller needs to know it is acceptable, but account numbers, signatory specimens and passport scans have no place in a pre-contract document.

Will a bank open a letter of credit against an ICPO?

No. Banks issue credits against an executed sale contract, because the credit has to reflect terms that actually exist. See the guide to the types of letter of credit for what the bank will ask for.

What is the difference between an ICPO and a purchase order?

A conventional purchase order is issued under an existing supply agreement and is normally binding under that agreement. An ICPO is issued before any agreement exists, which is precisely why it is not.