Advance Payment Guarantee Called in Turkey: How Can a Foreign Company Challenge the Demand? (2026 Updated Guide)

An advance payment guarantee is called in Turkey against a foreign company. Learn when payment can be stopped, how guarantee wording affects liability, when injunctions may be available, and how foreign contractors can challenge abusive demands.

An advance payment guarantee can create immediate financial exposure for a foreign contractor, supplier or investor doing business in Turkey. The beneficiary may demand payment from the issuing or guaranteeing bank after alleging that the foreign company failed to perform the underlying contract, failed to repay an advance or triggered another contractual event. The foreign company may strongly dispute the allegation, but this does not automatically prevent payment. The decisive questions usually include the wording and legal nature of the guarantee, whether the beneficiary’s demand satisfies the guarantee conditions, whether the guarantee is independent from the underlying contract, and whether exceptional circumstances justify urgent judicial intervention before payment occurs. Because banks may be required to process compliant demands quickly, legal and evidentiary action should begin immediately after the company learns that a call has been made or is imminent.

What Is an Advance Payment Guarantee?

Advance payment guarantees are commonly used where one contractual party pays money before the other party completes its performance. The beneficiary seeks protection against the risk that the advance will not be earned, applied properly or repaid under the agreed circumstances.

They frequently appear in construction, infrastructure, energy, machinery supply, EPC, procurement and international commercial contracts.

Why Are Advance Payment Guarantees Particularly Risky?

The guaranteed amount can be substantial, and the beneficiary may call the guarantee while the underlying contractual dispute remains unresolved. A foreign company can therefore face immediate cash exposure even though it believes that it has performed correctly or that the beneficiary itself breached the contract.

Start With the Guarantee Text, Not Only the Main Contract

The first document to examine is the guarantee itself. The company should identify the beneficiary, issuing bank, guaranteed amount, expiry date, payment conditions, required documents, governing law and any wording concerning first demand, unconditional payment or independence.

The underlying contract remains important, but it should not replace analysis of the guarantee instrument.

Is the Guarantee Independent From the Underlying Contract?

This is frequently the central legal question. Certain bank guarantees operate independently from the underlying commercial relationship. In such cases, the bank’s payment obligation may principally depend on whether the beneficiary has made a demand complying with the guarantee rather than whether the beneficiary will ultimately prevail in the underlying contractual dispute.

A foreign company should therefore avoid assuming that simply proving contractual performance will automatically prevent the bank from paying.

Conditional Guarantees Require Different Analysis

Some guarantees require specific statements, certificates or documents before payment can be demanded. If the beneficiary fails to satisfy those requirements, the foreign company may have stronger grounds to dispute whether a valid call has occurred.

Every condition should be compared word-for-word with the demand.

Obtain a Copy of the Demand Immediately

The foreign company should request the complete call documentation. Determine when the demand was submitted, the amount requested, the beneficiary’s statements and supporting documents.

A summary from a project manager or bank employee is not enough for a serious legal assessment.

Check Whether the Demand Was Made Before Expiry

Guarantees normally contain an expiry mechanism. The date and method of presentation can therefore be decisive.

The company should verify whether the beneficiary made a valid demand within the period specified by the instrument.

Check the Amount Demanded

The beneficiary should not automatically be assumed to have a right to claim the original maximum guarantee amount. The guarantee may have been reduced as the advance was amortized through invoices, progress payments or deliveries.

Calculate the outstanding advance carefully.

Has the Advance Already Been Repaid Through Performance?

In many projects, the advance is gradually recovered from progress payments or invoices. If substantial amounts have already been amortized, calling the original guarantee amount may create a serious dispute.

Payment certificates, invoices and accounting records should be collected immediately.

Automatic Reduction Clauses Are Important

Some guarantees provide that the guaranteed amount decreases following specified payments or project milestones. Determine whether those reductions occurred automatically or required separate documentation.

A beneficiary’s demand should be compared with the amount legally remaining under the guarantee at the time of the call.

Why Did the Beneficiary Call the Guarantee?

Identify the stated trigger. The beneficiary may allege termination, abandonment, delayed performance, failure to deliver, misuse of the advance or failure to refund money.

The foreign company should create a factual chronology responding directly to that allegation.

A Contractual Dispute Does Not Automatically Invalidate the Call

The existence of arbitration, litigation or contractual disagreement does not necessarily suspend an independent guarantee.

This is why urgent analysis of the guarantee itself is essential.

Can a Turkish Court Stop Payment?

In exceptional circumstances, urgent judicial protection may potentially be considered. However, courts generally approach interference with independent guarantee relationships cautiously because the commercial purpose of such instruments is to provide reliable payment security.

The precise guarantee wording and facts are therefore critical.

Fraud or Manifest Abuse Can Become Important

Where the beneficiary’s call is allegedly fraudulent or clearly abusive, the foreign company may seek to rely on exceptional legal principles capable of supporting intervention.

A mere disagreement about contractual performance should not automatically be equated with fraud.

Evidence Must Be Strong

If emergency relief is sought, the applicant should present concrete evidence rather than general allegations that the demand is unfair.

Relevant evidence may include payment certificates, completion records, beneficiary acknowledgements, correspondence, invoices, termination notices and documents showing repayment of the advance.

Timing Is Critical

Once the bank pays the guarantee, the dispute changes significantly. The foreign company may then need to pursue recovery rather than prevent payment.

Any potential interim relief should therefore be assessed immediately after the call becomes known.

Notify the Bank Promptly

If there are legitimate grounds to challenge the demand, the company should notify the relevant bank and provide the necessary legal and factual information.

However, sending a protest letter does not automatically suspend a bank’s payment obligation.

Understand the Bank’s Position

The bank is not necessarily the decision-maker in the underlying contractual dispute. Its obligations depend on the guarantee and applicable law.

Foreign companies should therefore avoid demanding that the bank resolve complex project claims as though it were an arbitrator.

Counter-Guarantees Can Complicate the Structure

International transactions may involve a foreign bank issuing a counter-guarantee in favor of a Turkish bank, which then issues the local guarantee to the beneficiary.

In that structure, several separate legal relationships may exist.

Analyze Each Guarantee Separately

Do not assume that the counter-guarantee has exactly the same terms as the local guarantee. Review both instruments, their governing laws and their respective demand conditions.

Foreign Banks Should Be Notified Immediately

If the Turkish guarantee is backed by a foreign counter-guarantee, the foreign company should coordinate rapidly with its relationship bank and legal advisers.

A payment by the local bank can trigger reimbursement obligations elsewhere.

Governing Law Matters

The underlying contract, local guarantee and counter-guarantee may each be governed by different laws.

The dispute-resolution mechanism for the construction or supply contract may therefore not automatically govern a dispute concerning the bank guarantee.

Arbitration Clauses Require Careful Analysis

A main contract may contain an arbitration clause while urgent proceedings concerning the guarantee involve a court or another forum.

The interaction between arbitration and interim judicial protection should be analyzed at the beginning of the dispute.

Preserve the Underlying Contractual Evidence

Even where the guarantee is independent, the underlying facts can remain important when the company alleges fraud, abuse or later seeks damages from the beneficiary.

Preserve the entire project record.

Prepare a Contract Performance Timeline

Create a chronology covering contract signature, advance payment, commencement, deliveries, milestones, invoices, progress payments, deductions, delays, notices, termination events and the guarantee call.

A clear timeline can expose contradictions in the beneficiary’s position.

Review Employer or Buyer Defaults

The foreign company should investigate whether the beneficiary itself failed to perform contractual obligations.

Examples can include failure to provide site access, drawings, approvals, permits, payment or necessary technical information.

Delay Responsibility Can Be Central

A beneficiary may call a guarantee after alleging contractor delay, while the contractor argues that the delay resulted from employer actions, force majeure or variations.

Preserve schedules, notices and contemporaneous project correspondence.

Review Termination Notices Carefully

If the guarantee call follows termination, determine whether termination complied with the contract’s notice and cure requirements.

An allegedly invalid termination can become important in the broader dispute, although it does not necessarily invalidate an independent demand automatically.

Avoid Informal Admissions

Project personnel should not send hurried emails admitting that the beneficiary is entitled to the guarantee amount simply to preserve a commercial relationship.

Communications should be coordinated once a guarantee dispute arises.

Can the Beneficiary Call the Guarantee for an Unrelated Claim?

The guarantee wording and contractual structure should be reviewed. If the demand is clearly unrelated to the risk secured by the instrument, this can become relevant to the challenge.

The analysis is highly document-specific.

Partial Calls Should Be Examined

Some guarantees permit partial demands. Determine whether previous calls were made and calculate the remaining guaranteed amount.

The total demanded should never exceed the maximum amount legally available under the instrument.

Currency Issues Can Increase Exposure

Where the guarantee is denominated in a foreign currency, exchange-rate movements can materially affect the financial impact.

The company should quantify its exposure immediately.

Prepare for the Possibility That Payment Cannot Be Stopped

Emergency strategy should include both prevention and recovery scenarios.

If payment occurs, the company may need to pursue reimbursement or damages against the beneficiary under the underlying contractual relationship.

Can the Foreign Company Recover a Wrongfully Called Guarantee?

Potentially. If the beneficiary ultimately had no contractual right to retain the proceeds, recovery claims may arise depending on the contract, governing law and dispute-resolution mechanism.

The guarantee’s independence does not necessarily mean that the beneficiary can ultimately keep money to which it has no substantive entitlement.

Arbitration May Determine the Final Financial Position

In international projects, the underlying contract frequently sends disputes to arbitration. The arbitral tribunal may later determine whether termination was lawful, whether the advance was repayable and whether the beneficiary must return amounts obtained under the guarantee.

Claim Interest and Additional Losses Carefully

If the company seeks recovery after an allegedly wrongful call, preserve evidence concerning financing costs, bank charges and other direct losses.

More remote commercial losses may require significantly stronger proof of causation.

Review Bank Charges and Collateral

A guarantee call can affect credit facilities and collateral even before the underlying dispute is resolved.

Foreign companies should coordinate legal strategy with treasury and finance teams.

Multiple Guarantees May Be at Risk

An advance payment guarantee dispute may be accompanied by calls on performance bonds, retention guarantees or other security instruments.

Review all outstanding guarantees immediately.

Prevent a Chain Reaction

If the beneficiary is considering multiple calls, identify each instrument and its maximum exposure. Emergency strategy should cover the entire security package rather than only the first guarantee called.

Preserve Evidence of Bad Faith or Abuse

If the company believes the beneficiary is using the guarantee solely as commercial pressure, preserve communications supporting that allegation.

Threats linking the call to unrelated concessions can become particularly relevant.

Do Not Rely Solely on Commercial Negotiations

Negotiations may continue, but legal deadlines and payment risks should be protected simultaneously.

A promise to “discuss the issue next week” may be meaningless if the bank pays tomorrow.

Consider a Standstill Agreement

Where commercially possible, the parties may agree that the beneficiary temporarily refrains from demanding payment while negotiations proceed.

Any standstill should be documented clearly.

Review the Guarantee Before Signing Future Contracts

The best protection often begins during contract negotiation. Foreign companies should examine guarantee wording, reduction mechanisms, expiry, documentary conditions and governing law before the instrument is issued.

Avoid Unlimited First-Demand Exposure Where Negotiable

Where commercial bargaining power permits, the contractor may seek objective demand conditions, automatic reductions and clear expiry provisions.

The wording should correspond with the actual risk the guarantee is intended to secure.

Align the Guarantee With Advance Amortization

The guaranteed amount should ideally reduce as the advance is recovered.

Failure to align the two can leave the beneficiary holding security far exceeding the remaining economic exposure.

2026 Practical Strategy for Foreign Companies

A foreign company facing an advance payment guarantee call in Turkey should immediately obtain the guarantee and demand, identify whether the instrument is independent or conditional, verify expiry and presentation requirements, calculate the outstanding guaranteed amount, review advance amortization, preserve evidence concerning contractual performance, notify relevant banks, assess whether exceptional grounds justify urgent interim protection and prepare simultaneously for the underlying contractual or arbitration claim.

Frequently Asked Questions

Can a foreign company automatically stop an advance payment guarantee because it disputes the underlying contract?

No. Where the guarantee is independent, a contractual dispute does not automatically prevent payment.

Can the bank refuse a demand that does not comply with the guarantee?

The demand should be assessed against the instrument’s conditions. Material non-compliance can be significant.

Can a Turkish court stop payment?

Potentially in exceptional circumstances, depending on the guarantee structure, applicable law and evidence. Urgent legal assessment is essential.

Is alleging that the beneficiary acted unfairly enough?

Usually, a general allegation of unfairness will not be sufficient. Strong evidence is required where exceptional intervention is sought.

What if most of the advance has already been recovered?

The guarantee’s reduction provisions and actual outstanding amount should be examined immediately.

What if the guarantee has expired?

The timing and method of the demand should be compared carefully with the expiry provisions.

Can the beneficiary call the full guarantee after partial performance?

That depends on the wording, reduction mechanism and factual circumstances. The outstanding secured amount should be calculated.

What if a Turkish bank issued the guarantee against a foreign bank’s counter-guarantee?

Both instruments must be reviewed separately because they can create distinct obligations and governing-law issues.

Can the company recover money after the guarantee has already been paid?

Potentially. The company may pursue claims under the underlying contractual relationship if the beneficiary had no substantive entitlement to retain the proceeds.

What should the foreign company do first?

Obtain the complete guarantee and demand immediately. Determine the bank’s payment deadline, examine whether the demand complies with the instrument and assess urgent protective measures before payment changes the dispute from prevention into recovery.

Client-Focused Legal Support for Advance Payment Guarantee Disputes

An advance payment guarantee call can expose a foreign company to immediate bank payment, loss of collateral, counter-guarantee liability, project termination, arbitration and substantial cash-flow pressure. Fırat Fesih Kaya Law Office assists foreign contractors, international suppliers, investors and companies involved in Turkish bank-guarantee and commercial-contract disputes. Lawyer Fırat Fesih Kaya provides legal assistance in reviewing guarantee calls, assessing urgent interim measures, coordinating with Turkish and foreign banks, examining abusive-demand allegations and pursuing contractual, judicial or arbitration remedies arising from wrongful calls.

Phone: +90 312 434 22 22

Mobile / WhatsApp: +90 532 769 22 22

Email: info@firatfesihkaya.av.tr

Address: Mevlana Boulevard No:221, Yıldırım Tower, Office No:148, 06520 Balgat, Çankaya, Ankara, Turkey