MT103 Against Bill of Lading: How Payment on Delivery Really Works in Bulk Commodity Trades

"Payment by MT103 against bill of lading" appears in a large share of the offers that reach a commodity trading desk. It sounds like payment on delivery: the seller ships, presents the bill of lading, and the buyer wires the money. In practice the phrase describes an open-account trade with no bank protection for either side, and understanding why is the first step towards structuring a bulk diesel or sugar cargo properly.

What an MT103 actually is

MT103 is the SWIFT message type for a single customer credit transfer. When a buyer's bank executes a wire, it sends an MT103 to the beneficiary's bank, or through a correspondent, and the beneficiary's account is credited. The message exists only after the funds have left the ordering account. It is a receipt of a transfer that has happened, not an instrument that can be issued ahead of time, held in escrow by the seller's bank, or triggered by a document.

That has three consequences. An MT103 cannot be "pre-advised" as a promise to pay. It cannot be made conditional on a bill of lading, because the SWIFT network has no mechanism to check a shipping document. And a copy of an MT103 proves nothing about future funds; it is routinely forged because it is a plain text message.

What "against bill of lading" implies

A bill of lading is issued by the carrier when the cargo is loaded, under Incoterms 2020 FOB or CFR at the load port, and it is the document of title to the goods. In a genuine payment-against-documents structure the original bills of lading pass through the banking system: the seller's bank presents them, the buyer's bank pays or accepts, and only then are the originals released so the buyer can take delivery. This is what a documentary letter of credit under UCP 600 or a documentary collection under URC 522 does.

"MT103 against BL" skips the banks. The seller is asked to load a cargo worth several million dollars, hand over or e-mail the bill of lading, and trust that the buyer will wire the funds. In the version that targets buyers, the buyer is asked to wire as soon as a copy of the bill of lading is shown, before any inspection and before the originals are in its control. Either way, one party carries the full counterparty risk.

Rule: an MT103 is proof that money has moved, not a promise that it will. Payment on delivery in bulk commodities is achieved by placing the title documents inside a bank undertaking, never by a wire sent on trust.

How payment on delivery is structured in practice

Documentary letter of credit at sight

The buyer's bank issues an irrevocable letter of credit by MT700, subject to UCP 600, payable at sight against a stated set of documents. For an EN 590 cargo this is typically the full set of original clean on board bills of lading, the commercial invoice, the certificate of quantity and certificate of quality issued by an independent inspector at the load port, and the origin certificate. For ICUMSA 45 sugar the set adds the phytosanitary certificate, the fumigation certificate and the packing list. The seller is paid when the bank finds the documents compliant under ISBP 821; the buyer receives title documents only after payment. This is payment against bill of lading in the proper sense.

Documentary collection

Where the parties have an existing relationship, the seller's bank sends the documents to the buyer's bank under URC 522 with instructions "documents against payment" (D/P). The buyer's bank releases the bills of lading only when the buyer pays, and the payment itself is then made by MT103. This is the only context in which "MT103 against bill of lading" is a correct description, and the collecting bank, not the seller, holds the documents.

Why the phrase persists

• It allows an intermediary without a bank line to present itself as a buyer: no issuing bank is needed when payment is a future wire.
• It allows a seller without product to ask for payment against a copy document that was never issued by a carrier.
• It moves the transaction outside the documentary checking that would expose a non-existent cargo, a chartered vessel that does not exist, or a specification that cannot be met.

Checklist before accepting any payment clause

1. Identify the bank undertaking: MT700 letter of credit, MT760 guarantee, or a collection under URC 522. If none is named, the trade is open account.
2. Confirm that original title documents move through the banks, not by courier between the parties.
3. Require inspection by SGS, Intertek, Bureau Veritas or an equivalent body named in the contract, with the inspection report as a credit document.
4. Match the Incoterms 2020 delivery point to the document that triggers payment: on board bill of lading for FOB and CFR, discharge report for DAP.
5. Verify the issuing or collecting bank by authenticated SWIFT, bank to bank, not by a PDF received from the counterparty.

A refinery, a sugar mill or a trading house with its own credit lines will accept a sight letter of credit without hesitation. A counterparty who insists on MT103 against a copy of a bill of lading is asking you to finance the risk that its own bank will not.