Should You Pay Before or After Dip Test? (Petroleum Trading Payment Timing)

A seller asks you to wire $500,000 before the dip test. They promise the product is there, show you impressive documents, and pressure you: "We need payment to secure the product for you." Should you pay?

No. Absolutely not. The industry standard is crystal clear: Pay AFTER successful product verification, never before. This single rule protects you from 90% of petroleum trading scams.

The Golden Rule

Industry standard: Pay AFTER successful product verification. This means after the dip test (if you're doing one), after receiving and verifying the SGS or inspection report, after confirming product meets specifications, and after verifying the seller's authority to sell.

Never pay the full amount before verifying the product exists and meets specifications.

Standard Payment Sequence

Legitimate petroleum transactions follow three phases:

Agreement Phase (No payment): You negotiate terms, sign the contract or SPA, and agree on specifications. No money changes hands.

Verification Phase (No payment): The seller provides Proof of Product documents, you verify those documents (TSR, SGS reports, etc.), conduct a dip test or review the inspection report, and confirm the product exists and meets specifications. Still no payment.

Payment Phase (Pay now): After successful verification, you make payment via the agreed method. The seller transfers title and ownership. Product is delivered or transferred.

Payment happens at step 3, not before.

What "After Verification" Means

Different transaction types have different verification points, but the pattern is always the same: verify first, pay second.

FOB Tank-to-Tank (TTT): Verify product in the seller's tank via dip test or SGS, pay after successful verification, then product is injected into your tank and you receive title of ownership.

CIF or TTV: Verify product before loading, product loads on vessel, vessel arrives at your port, SGS or CIQ conducts inspection at discharge port, you pay after successful discharge port inspection, then receive Bill of Lading and title.

Tank Take Over (TTO): Verify product in the tank, pay after verification, receive title transfer.

Common thread across all types: Verify first, pay second.

Exceptions: When Payment Before Verification Might Happen

There are limited scenarios where some form of payment commitment before verification is normal, but note these aren't direct payments:

Letter of Credit (LC): The bank holds payment and releases it when the seller provides required documents. This protects both parties and is different from direct payment – the bank intermediates.

SBLC/Bank Guarantee: The bank guarantees payment but you haven't actually paid yet. It's not actual payment, just a guarantee. The seller has security while you still get to verify before actual funds transfer.

Partial Deposit with Escrow: A small deposit of 5-10% held in escrow, fully refundable if product doesn't verify. The escrow releases after successful transaction. This isn't full payment and is protected by the escrow service.

Established Relationship: After 5-10 successful transactions with the same supplier, trust has been built over time. Even then, verification before full payment is still smart. This is a business relationship exception, not standard for new deals.

Red Flags: Demands for Early Payment

Major red flags appear when sellers demand "pay 100% before dip test" (industry standard is after verification, and there's high risk of no product or wrong product), "pay before we provide POP documents" (how can you verify without documents? This is a classic scam pattern), "send payment to show good faith before we let you verify" (no – verification proves good faith on the seller's side, not yours), "pay before inspection report" (product should verify first), or "wire transfer now, we'll arrange dip test after" (backwards sequence, very risky).

If a seller insists on payment before verification, walk away.

Safe Payment Structures

Classic sequence: Dip test → Product verified → Payment → Delivery

Letter of Credit: LC opened → Product verified → Shipping docs presented → Bank pays seller → You pay bank

Escrow: Deposit to escrow → Verify product → Escrow releases to seller → Delivery

Bank guarantee: SBLC issued (not payment) → Verify product → Actual payment → Delivery

All of these protect you by ensuring verification before irrevocable payment.

The 2% Product Value Clause

You might see in procedures: "If buyer fails to issue MT760 within 10 days, buyer pays 2% product value to seller."

This is controversial and risky. It asks you to pay 2% without verification, penalizes you for bank delays outside your control, and is often a scam tactic.

Better alternative: "If buyer fails to issue agreed payment instrument after successful product verification, buyer pays penalty." Payment penalties should kick in AFTER verification, not before.

Small vs. Large Orders

For large orders over $500K, sellers may require an SBLC or LC before showing product. This is more acceptable since it's not payment, just a guarantee – but actual payment still comes after verification.

For smaller orders of $50K-200K, sellers demanding SBLCs or LCs are being excessive. They should accept the simple verification then payment sequence. If they won't, find a different supplier.

For trial orders of $10K-50K, no SBLC or LC is needed. It's simple: verify, pay, deliver. If a seller demands complex payment structures for trial orders, you have the wrong supplier.

What to Say to Seller

If seller demands payment before verification:

"I'm ready to pay immediately after successful product verification. I'll conduct a dip test [or accept SGS report dated within 48 hours], and upon successful verification, payment will be made within 24 hours via wire transfer. This is standard industry practice."

If seller insists on payment first:

"I need to verify the product exists and meets specifications before making payment. If you're confident in your product, verification should be no problem. I'm a serious buyer ready to pay immediately upon successful verification."

If seller won't budge:

"Thank you for your time, but I'll need to work with a supplier who follows industry-standard procedures of verification before payment."

Then find a different supplier.

Quick Decision Checklist

Before making ANY payment:

• Have you received complete POP documents?
• Have you verified TSR with terminal (if applicable)?
• Have you verified SGS report authenticity?
• Have you conducted dip test OR accepted recent verified inspection?
• Have you confirmed seller's authority to sell?
• Does product meet your specifications?
• Is contract signed with clear terms?
• Is payment method secure (bank transfer, LC, etc.)?

All boxes checked? Okay to pay.

Any box unchecked? Don't pay yet.

Bottom Line

The standard is simple: Pay AFTER verification, never before. Verification includes dip test, SGS report, TSR confirmation, and seller authority check.

The only exceptions are LC and SBLC, which are guarantees (not payment) and are acceptable before verification.

Red flag: Any seller demanding wire transfer payment before you verify product.

Your position: "I pay immediately upon successful verification. This is industry standard."

If the seller refuses this standard sequence, you have the wrong supplier. Move on.

Protect yourself: Never wire money for product you haven't verified exists and meets specifications. This single rule will protect you from 90% of petroleum trading scams.

Take Action

Work with suppliers who respect industry-standard payment timing. Submit an RFQ on CommoditiesHub and connect with verified suppliers who welcome verification before payment.