Paying a Turkish supplier, manufacturer or contractor in advance? Learn how foreign companies can protect advance payments through bank guarantees, letters of credit, milestone payments, due diligence, escrow structures and strong commercial contracts in Turkey.

Paying money before receiving goods or services is one of the most significant risks in international commercial transactions. A foreign buyer may be asked by a Turkish manufacturer, supplier, contractor or business partner to pay 30%, 50% or even 100% of the contract price before production or delivery begins.

The commercial explanation may be reasonable. The Turkish company may need funds to purchase raw materials, reserve production capacity, manufacture customized goods or mobilize personnel for a project.

Nevertheless, once the money has been transferred, the foreign buyer’s negotiating position can change dramatically.

The Turkish Ministry of Trade’s international trade guidance expressly identifies advance payment as a payment structure in which the importer pays before shipment and notes that risks such as delayed shipment or non-conforming goods are borne principally by the importer under this model. (Gümrük Rehberi)

For this reason, foreign companies should not approach advance-payment protection simply by asking:

“Do we trust this Turkish supplier?”

The more useful question is:

“If this company does not perform after receiving our money, how quickly and realistically can we recover the advance?”

A properly structured transaction can substantially reduce that risk.

Why Are Advance Payments Risky?

Assume a European company agrees to purchase EUR 1 million of machinery from a Turkish manufacturer.

The manufacturer requires a 50% advance.

The foreign buyer transfers EUR 500,000.

Three months later, the machinery has not been delivered.

The supplier explains that production has been delayed.

Another month passes.

Then another.

Eventually, the buyer discovers that the supplier has financial difficulties and several creditors are already pursuing it.

The buyer may have a valid contractual claim for EUR 500,000.

But having a claim and recovering EUR 500,000 are two very different things.

That distinction explains why payment security should be negotiated before the money leaves the buyer’s account.

The Safest Advance Payment Is Not Necessarily a 100% Advance Payment

Foreign buyers should first ask whether the supplier genuinely requires the entire requested advance.

Instead of:

50% immediately + 50% before shipment

the parties might negotiate:

10% on signing + 20% after raw materials are purchased + 20% after production verification + 40% after inspection + 10% after shipment.

This converts one large unsecured exposure into several smaller exposures.

1. Conduct Due Diligence Before Paying

Never treat an advance-payment clause as purely a banking issue.

First investigate the Turkish company receiving the money.

Confirm its legal existence, corporate identity, management and representation authority.

For significant transactions, the investigation should also consider financial condition, litigation, enforcement proceedings, assets, relevant licenses and commercial history.

A sophisticated payment structure cannot completely compensate for paying an unreliable counterparty.

2. Verify the Company’s Exact Legal Name

The company named in the contract should correspond with the entity receiving the payment.

Check the complete corporate name and identifying information.

Be particularly cautious where the supplier requests:

“Please send the payment to our other company.”

That request requires an explanation.

3. Never Send a Commercial Advance to a Director’s Personal Account Without Proper Legal Basis

Suppose your contract is with ABC Manufacturing Company.

Shortly before payment, its director asks you to transfer EUR 200,000 to a personal bank account because it is “easier.”

That creates an obvious risk.

The payment destination should correspond with the contractual structure.

Any proposed deviation should be legally and commercially verified before money is transferred.

4. Independently Verify Bank Account Changes

International businesses increasingly face payment-instruction fraud.

A foreign buyer may receive an apparently genuine email stating:

“Our bank details have changed.”

Before transferring a substantial amount, independently verify the new payment instructions using a previously established communication channel.

Do not rely solely on the email containing the new bank details.

5. Use an Advance Payment Guarantee

One of the strongest protections available in appropriate commercial transactions is an advance payment guarantee.

The basic structure is straightforward.

The buyer pays an advance to the Turkish supplier.

A bank issues a guarantee protecting repayment of that advance under the terms of the guarantee.

If the supplier fails to perform and the applicable guarantee conditions are satisfied, the buyer can demand payment from the guarantor.

Türk Eximbank describes an advance payment guarantee as an instrument entitling the beneficiary to reimbursement of the advance where the principal does not fulfill the underlying contractual obligations. (Eximbank)

Why Is an Advance Payment Guarantee Important?

Without security, the buyer normally has a contractual claim against the supplier.

With an appropriately structured bank guarantee, the buyer may also have recourse to the issuing bank according to the guarantee’s terms.

This can fundamentally change the buyer’s risk profile.

A commercial claim against a financially distressed supplier may be difficult to collect.

A properly issued guarantee from an acceptable bank can provide significantly stronger payment security.

6. Do Not Accept Any Document Merely Called a “Guarantee”

The title of the document is not enough.

Review:

the issuing bank,

the guaranteed amount,

the beneficiary,

the expiry date,

the conditions for payment,

the required demand language,

the place and method of presentation,

and whether supporting documentation is required.

A guarantee that is extremely difficult to call may provide considerably less protection than expected.

7. Prefer Clear Demand Conditions

Bank guarantees may operate according to different structures and wording.

TEB describes a bank guarantee as a bank’s written undertaking to pay the beneficiary upon receipt of a complying demand where the applicant has failed to fulfill the underlying obligation. (Teb)

The exact guarantee text is therefore extremely important.

The foreign buyer’s lawyer should review the guarantee before the advance is paid, not after a dispute begins.

8. Verify the Guarantee Directly

Fraudulent guarantee documents are possible.

Do not transfer millions simply because the supplier emails a PDF containing a bank logo.

Establish an appropriate verification process through banking channels.

The authenticity and operative status of material guarantees should be confirmed before payment.

9. Check the Guarantee Amount

Suppose the buyer pays EUR 500,000 in advance.

The supplier provides a EUR 250,000 advance payment guarantee.

The buyer remains exposed for the difference.

The commercial team should therefore calculate exactly what percentage of the advance is protected.

10. Check the Guarantee Currency

Currency matters.

If the advance is EUR 500,000 but the guarantee is denominated in another currency, exchange-rate movements may create a protection gap.

The guarantee structure should correspond appropriately with the payment obligation.

11. Check the Expiry Date Carefully

A guarantee can become commercially useless if it expires before the underlying risk ends.

Suppose delivery is scheduled for 30 November.

The guarantee expires on 1 October.

The buyer may discover the non-performance only after the guarantee has expired.

Guarantee duration should therefore provide an appropriate buffer beyond the expected performance period.

12. Deal With Project Extensions

Commercial projects are frequently delayed.

If the delivery deadline is extended, the security should be reviewed simultaneously.

A contract amendment extending delivery without extending the advance-payment guarantee can create a serious gap.

13. Consider Automatic Extension Mechanisms

Depending on the transaction and bank’s willingness, appropriate extension mechanisms can be negotiated.

Alternatively, the contract can require the supplier to provide an extended guarantee before the existing one approaches expiry.

Failure to extend may itself trigger contractual consequences.

14. Use a Letter of Credit Where Appropriate

A letter of credit can provide an alternative payment structure for international trade.

Instead of simply transferring the entire price and waiting for performance, payment can be linked to presentation of specified documents.

The appropriate structure depends on the transaction.

Letters of credit are particularly relevant in international sale-of-goods transactions.

15. Understand the Difference Between a Letter of Credit and a Bank Guarantee

These instruments perform different functions.

A letter of credit is generally structured as a payment mechanism against compliant documents.

A guarantee generally provides security where the underlying party fails to perform or pay according to the applicable terms.

Foreign buyers should select the instrument based on the actual commercial risk.

16. Consider a Standby Letter of Credit

For some international transactions, a standby letter of credit may provide appropriate security.

Türk Eximbank describes standby letters of credit as security instruments intended to ensure that an obligation is fulfilled at maturity or, failing that, that payment is made. (Eximbank)

Whether this is preferable to an advance-payment guarantee depends on the transaction, jurisdictions and participating banks.

17. Consider Escrow Structures

For high-value transactions, the parties may consider an appropriately structured escrow arrangement.

Instead of transferring the entire advance directly to the supplier, funds may be held subject to agreed release conditions.

The escrow arrangement should clearly determine when funds are released and what happens if conditions are not satisfied.

18. Do Not Use an Informal “Escrow”

A business partner’s lawyer, consultant or unrelated intermediary should not automatically be treated as a neutral escrow provider.

The legal status of the arrangement, account ownership, release conditions, fees and consequences of dispute should be documented.

For significant amounts, professional institutional structures should be considered.

19. Use Milestone Payments

Milestone payments are among the most practical methods of reducing advance-payment exposure.

For example:

10% – contract signing

20% – raw materials acquired

25% – manufacturing milestone completed

25% – successful factory inspection

15% – shipment

5% – final acceptance

The exact percentages depend on the transaction.

The principle is that payment should progressively follow verifiable performance.

20. Define Milestones Objectively

Avoid vague language such as:

“30% when production is substantially completed.”

What does substantially completed mean?

Instead, identify measurable conditions.

For machinery, this might involve completion of specific components, factory acceptance testing or certification by an agreed independent inspector.

21. Use Independent Inspection

Foreign buyers purchasing high-value manufactured goods can consider independent inspection before releasing additional payments.

The inspector can verify production progress, quantity, specifications and other agreed conditions.

The inspection mechanism should be written into the contract.

22. Link Payments to Documents

Payment milestones can be tied to documentary evidence.

Examples may include manufacturing reports, inspection certificates, shipping documents or other transaction-specific records.

The required documents should be defined precisely.

23. Retain Part of the Purchase Price

Do not necessarily pay 100% before final performance.

A retention amount can provide leverage if defects or incomplete performance are discovered.

For example, the buyer might retain 5% or 10% until final acceptance.

24. Consider a Performance Guarantee

An advance-payment guarantee protects the advance.

A performance guarantee serves a different function.

Türk Eximbank describes performance guarantees as instruments entitling the beneficiary to compensation where contractual obligations are partially or fully not performed. (Eximbank)

In substantial projects, both forms of protection may be relevant.

25. Advance Payment Guarantee Versus Performance Guarantee

Consider a EUR 2 million contract.

The buyer pays EUR 600,000 in advance.

An advance-payment guarantee can protect repayment of that EUR 600,000 under its terms.

A performance guarantee can separately address failure to perform contractual obligations.

These risks should not automatically be treated as identical.

26. Include a Clear Refund Clause

The commercial contract should state what happens to the advance if the supplier fails to perform.

For example, define the circumstances in which the advance becomes repayable and the deadline for reimbursement.

Avoid relying solely on general statements such as:

“The advance will be returned if necessary.”

27. Define Supplier Default

The contract should clearly identify material defaults.

Depending on the transaction, these may include failure to commence production, failure to meet specified milestones, excessive delay, abandonment of the project, failure to provide required security or insolvency-related events.

Clear default provisions make enforcement easier.

28. Include a Long-Stop Date

A long-stop date creates a final deadline beyond which the buyer is not required to tolerate continuing delay.

For example:

Delivery must occur by 1 October.

Limited extensions may be permitted.

But if delivery has not occurred by 1 December, specified termination and repayment rights arise.

This prevents indefinite delay.

29. Regulate Delay Explicitly

A contract should address what happens when performance is late.

Will the supplier receive a cure period?

Can the buyer terminate?

Does the advance become immediately refundable?

Do agreed contractual consequences apply?

Ambiguity becomes expensive after a dispute begins.

30. Consider Contractual Penalties Carefully

Appropriate contractual penalties may create additional commercial pressure for timely performance.

However, penalty clauses should be drafted consistently with applicable law and the transaction’s circumstances.

An excessive number written into a contract is not necessarily the same as an amount that will ultimately be recoverable.

31. Define the Specifications Precisely

Advance-payment disputes are not always caused by complete non-delivery.

The supplier may deliver something that the buyer says is unusable.

The supplier may respond:

“We delivered exactly what the contract required.”

Detailed technical specifications reduce this risk.

Attach drawings, standards, samples, tolerances and performance criteria where relevant.

32. Include Acceptance Testing

For machinery, software, industrial equipment and complex products, define acceptance testing.

State:

where testing occurs,

who performs it,

which standards apply,

what constitutes failure,

whether defects can be corrected,

and when final payment becomes due.

33. Protect Against Partial Performance

Suppose the buyer pays EUR 400,000 and the supplier completes only 30% of the work.

The contract should address how the value of partial performance will be calculated and how the unused portion of the advance will be returned.

Do not wait until termination to determine this methodology.

34. Regulate Ownership of Materials

Where the buyer’s advance finances specific raw materials or equipment, consider whether contractual protections concerning those materials are commercially and legally appropriate.

Who owns them?

Can they be sold to another customer?

What happens if the supplier becomes insolvent?

These issues require transaction-specific structuring.

35. Protect Custom-Manufactured Goods

Customized goods create additional risk because they may have little resale value.

The buyer should consider stronger inspection rights, production monitoring and security mechanisms where large advances finance bespoke manufacturing.

36. Require Progress Reports

For long manufacturing periods, require regular progress information.

Reports may include photographs, production schedules and milestone documentation.

For high-value projects, physical inspection rights may also be appropriate.

37. Include Audit or Inspection Rights

Where the buyer’s advance is specifically intended to finance production, the contract may provide limited verification rights concerning use of funds or production progress.

The scope should be proportionate and clearly defined.

38. Protect Against Subcontractor Problems

A Turkish contractor may use subcontractors.

If performance depends heavily on them, the buyer should understand the subcontracting structure.

The main contractor should not automatically escape responsibility merely because a subcontractor fails.

The contract should allocate that risk.

39. Check Whether Critical Materials Have Been Ordered

If a large advance is supposedly needed to purchase specialized materials, request appropriate evidence.

For high-value projects, payment might be linked directly to verified procurement milestones.

40. Consider Direct Payment to Critical Suppliers

In selected projects, parties may structure certain payments directly to critical suppliers rather than transferring the entire amount to the main contractor.

This requires careful contractual coordination but can reduce misuse-of-funds risk.

41. Check Insolvency Risk Before Paying

A company experiencing severe liquidity problems may request a large advance simply to pay old creditors rather than finance your order.

Review financial indicators where the amount is material.

An advance should not unknowingly become emergency working capital for an insolvent counterparty.

42. Check Enforcement Proceedings

Repeated enforcement proceedings can indicate liquidity problems.

Where legally and practically available, material litigation and enforcement exposure should be reviewed during due diligence.

A supplier already facing aggressive creditor action creates greater advance-payment risk.

43. Check Existing Security Over Assets

A supplier may tell the buyer:

“Don’t worry, we own the factory.”

But the factory may be heavily mortgaged.

Machinery may be financed.

Receivables may have been assigned.

Asset ownership does not necessarily mean that sufficient unencumbered value exists to satisfy the buyer’s future claim.

44. Obtain Corporate Guarantees Where Appropriate

If the contracting company belongs to a financially stronger corporate group, the buyer may request an appropriate parent-company guarantee.

The guarantee should be legally reviewed.

A promise that “our holding company stands behind us” is not equivalent to an enforceable guarantee.

45. Personal Guarantees Require Careful Analysis

In certain closely held businesses, a shareholder guarantee may be proposed.

Whether this provides meaningful protection depends on applicable formal requirements, drafting and the guarantor’s actual financial position.

A personal guarantee from someone with no recoverable assets offers little commercial protection.

46. Confirm the Signatory’s Authority

Before signing the contract, verify that the person executing it can legally bind the Turkish company.

The same applies to amendments, guarantees and settlement agreements.

A beautiful contract is useless if authority problems undermine enforceability.

47. Use a Proper Written Commercial Contract

Do not transfer substantial advances based only on a quotation, pro forma invoice and messaging correspondence.

A written agreement should address payment, delivery, specifications, security, default, termination, repayment and dispute resolution.

The larger the advance, the stronger the contractual architecture should be.

48. Include Governing Law

International contracts should identify the applicable governing law.

Do not leave this issue unresolved merely because the parties expect the transaction to succeed.

Dispute planning belongs at the beginning of the commercial relationship.

49. Include a Dispute Resolution Clause

The contract should specify where disputes will be resolved.

Depending on the transaction, this may involve Turkish courts or arbitration.

International businesses should consider enforcement implications when selecting the forum.

50. Consider Arbitration for Cross-Border Transactions

Arbitration may be attractive for substantial international commercial contracts.

But the arbitration clause must be properly drafted.

It should address matters such as institution, seat, language and tribunal structure where appropriate.

51. Think About Enforcement Before Signing

Ask:

If the supplier refuses to refund EUR 1 million, where are its assets?

If litigation succeeds, can the judgment be enforced?

If arbitration is used, where will enforcement occur?

Recovery strategy should influence contract design.

52. Include Proper Notice Provisions

Commercial contracts should specify how formal notices are delivered.

This becomes important when terminating the agreement, demanding repayment or invoking contractual remedies.

Informal messaging may create evidentiary disputes.

53. Preserve the Payment Trail

Pay through traceable banking channels.

Ensure that the transfer description corresponds with the contract and invoice.

Preserve bank confirmations.

A clear payment trail can become important evidence in recovery proceedings.

54. Preserve Commercial Communications

Save emails, quotations, specifications, production updates and representations concerning delivery.

These communications can become important if the supplier later disputes what was agreed.

55. What If the Supplier Fails to Deliver?

Do not immediately treat every delay as fraud.

First review the contract.

Determine the contractual deadline, cure provisions, force-majeure clause, termination rights and refund obligations.

Then preserve evidence and issue appropriate notices.

56. Can the Advance Be Recovered Through Litigation?

Potentially, depending on the contractual and factual circumstances.

The buyer may seek contractual remedies and repayment where legally justified.

However, obtaining a favorable decision does not automatically guarantee actual collection.

That is why pre-payment security is so important.

57. Can Assets Be Protected During a Dispute?

Depending on the facts and applicable legal requirements, interim protective measures may potentially be considered where there is a genuine risk affecting future recovery.

Such measures are highly fact-specific and should not be assumed to be automatically available.

58. What If the Supplier Has Already Spent the Advance?

The contractual repayment obligation does not necessarily disappear merely because the supplier used the money.

But practical recovery may become more difficult if the company lacks sufficient assets.

This again illustrates the difference between having a legal claim and having secured recovery.

59. What If the Turkish Company Enters Financial Distress?

Unsecured advance-paying buyers may find themselves competing economically with other creditors.

Advance-payment guarantees, appropriate banking instruments and well-structured security arrangements can therefore become particularly valuable.

60. What If the Supplier Disappears After Receiving Payment?

The matter should be investigated immediately.

Preserve the contract, bank transfer records, communications, invoices and identity information.

Depending on the facts, contractual recovery proceedings and potentially other legal remedies may need to be evaluated.

Non-performance alone, however, should not automatically be characterized as criminal fraud.

A Practical Advance Payment Protection Model

For a high-value transaction with a new Turkish supplier, a foreign buyer could consider a structure involving:

Pre-payment due diligence + detailed written contract + limited initial advance + advance-payment guarantee + milestone payments + independent inspection + performance security + retention + clear termination and refund provisions + effective dispute-resolution clause.

Not every transaction requires every mechanism.

The protection should be proportionate to the amount and risk.

Example: EUR 2 Million Machinery Purchase

Suppose a foreign company orders specialized machinery worth EUR 2 million.

Instead of paying EUR 1 million unsecured on signing, the transaction could potentially be structured around staged payments linked to defined production milestones.

The supplier provides an acceptable advance-payment guarantee covering the relevant advance.

An independent inspection occurs before shipment.

Part of the purchase price remains unpaid until successful acceptance.

The foreign buyer has now transformed a largely unsecured EUR 1 million exposure into a transaction supported by multiple layers of protection.

The Three-Layer Protection Principle

Foreign buyers can think about advance-payment security through three layers.

First layer: Counterparty protection.

Investigate who is receiving the money.

Second layer: Transaction protection.

Use milestones, inspections and clear contractual obligations.

Third layer: Recovery protection.

Use appropriate guarantees, security and dispute-resolution mechanisms.

The strongest commercial transactions normally combine all three.

Frequently Asked Questions

1. Is it safe to pay a Turkish company in advance?

Advance payments inherently expose the payer to non-performance risk. The Ministry of Trade’s international-trade guidance specifically notes that under advance payment, risks such as shipment delay and non-conforming goods fall principally on the importer. (Gümrük Rehberi)

2. What is the best way to protect a large advance payment?

Depending on the transaction, an appropriately drafted and verified advance-payment guarantee from an acceptable bank can provide significant protection.

3. What is an advance payment guarantee?

It is a guarantee designed to protect reimbursement of an advance where the underlying contractual obligations are not fulfilled according to its terms. (Eximbank)

4. Should I pay 100% before delivery?

This creates substantial buyer exposure. Where commercially possible, staged payments linked to objectively verifiable milestones can reduce risk.

5. Can I use a letter of credit instead?

Potentially. Letters of credit can be particularly useful for international goods transactions where payment can be linked to compliant documentary presentation.

6. Should the bank guarantee be checked before payment?

Yes. The issuing bank, authenticity, amount, expiry, demand requirements and operative wording should be reviewed before the advance is transferred.

7. Can I ask for both an advance-payment guarantee and a performance guarantee?

Potentially. They protect different risks and may both be appropriate for substantial projects. Türk Eximbank separately identifies advance-payment and performance guarantees among international guarantee instruments. (Eximbank)

8. What if the Turkish supplier asks me to pay another company’s bank account?

The reason should be investigated and appropriately documented before transferring money. The payment structure should correspond with the underlying contractual relationship.

9. What if the supplier does not deliver after receiving the advance?

The contract should immediately be reviewed for default, cure, termination and refund provisions. Available recovery and protective measures will depend on the facts and contractual framework.

10. Should I investigate the Turkish company before paying?

For material transactions, yes. Corporate identity, authority, financial condition and transaction-relevant legal risks should be examined before substantial funds are transferred.

Legal Protection for Advance Payments to Turkish Companies

Advance-payment protection should begin before the transfer is made, not after the supplier stops responding.

A foreign company considering a substantial advance to a Turkish supplier, manufacturer, contractor or business partner should determine:

Who is receiving the money?

Can the company perform the contract?

What percentage genuinely needs to be paid in advance?

What happens if production stops?

Is the advance secured by a reliable bank guarantee?

Can future payments be linked to independently verifiable milestones?

What assets or security will exist if repayment becomes necessary?

Where will a dispute be resolved and how will a successful claim actually be enforced?

Banks operating in Turkey expressly offer advance-payment guarantee structures designed to protect reimbursement where the underlying contractual obligations are not fulfilled, illustrating the practical importance of securing advance-payment exposure rather than relying exclusively on the supplier’s promise to repay. (Bank of China)

Fırat Fesih Kaya Law Office provides legal assistance to foreign companies, international buyers and foreign investors concerning advance payment protection in Turkey, Turkish supplier due diligence, commercial contracts, bank guarantees, performance guarantees, international sales agreements, supplier disputes and recovery of advance payments.

Legal assistance may include conducting pre-payment legal due diligence, reviewing the Turkish counterparty’s corporate authority, drafting and negotiating commercial agreements, reviewing advance-payment guarantee wording, structuring milestone and acceptance mechanisms, preparing termination and repayment notices and representing foreign companies in commercial litigation or arbitration.

Phone: +90 312 434 22 22
Mobile / WhatsApp: +90 532 769 22 22
Email: info@firatfesihkaya.av.tr
Office: Mevlana Boulevard No:221, Yildirim Tower, Balgat, Cankaya, Ankara, Turkey

For a foreign buyer, the central principle is simple: the time to protect an advance payment is before it is paid. Once the funds have been transferred, even an excellent legal claim may be less valuable than security that could have been negotiated before payment.