What is an LOI (Letter of Intent)?
A Letter of Intent (LOI) is a short document a buyer issues to a seller stating that they intend to purchase a specific commodity on stated terms. It opens a negotiation rather than closing one: it names the product, quantity, specification, delivery terms and a target price, and invites the seller to respond with a formal offer.
At a glance
| Term | LOI (Letter of Intent) |
|---|---|
| Definition | Non-binding document from the buyer expressing intent to purchase, outlining commodity, quantity, target price, Incoterm, destination and payment instrument. |
| Category | Deal flow & documents |
| Related terms | ICPO (Irrevocable Corporate Purchase Order), FCO (Full Corporate Offer), POP (Proof of Product), SGS Report |
What it is used for
In physical commodity trading an LOI is the normal opening move. A seller who has not met the buyer before will usually want an LOI (or an ICPO) in writing before spending time preparing a Full Corporate Offer, releasing specifications, or introducing their supply chain.
Key points
- Issued by the buyer, addressed to the seller or the seller's mandate.
- States commodity, grade or specification, quantity, delivery terms (an Incoterms rule and port), target price and intended payment instrument.
- Usually carries a validity period and the signatory's corporate details.
- Normally non-binding on price and quantity — the binding document is the sales contract that follows.
What to watch for
- An LOI is not a purchase commitment. Treat it as an indication of interest until a contract is signed.
- Confidentiality and non-circumvention clauses inside an LOI can be binding even when the commercial terms are not — read them.
- An LOI from an unverified company tells you nothing about ability to pay. Ask for proof of funds and business verification alongside it.
Frequently asked questions
Is an LOI legally binding?
Generally not on the commercial terms. Specific clauses — confidentiality, exclusivity, governing law, non-circumvention — can be binding if drafted that way, so read the document rather than assuming the whole thing is informal.
What is the difference between an LOI and an ICPO?
An LOI expresses intent and invites an offer. An ICPO is presented as a firmer purchase order, usually issued after the buyer has seen the seller's terms. In practice the distinction is often blurred in broker chains.
Who issues the LOI, the buyer or the seller?
The buyer. The seller's equivalent opening document is the Full Corporate Offer (FCO).
Related terms
Lodfy verifies every company on the platform — registration, ownership and sanctions screening — before they can trade.