Letter of Credit vs Advance Payment: Securing Payment in Türkiye (Turkey) Trade

The safest way to get paid by a Turkish buyer is cash in advance; the safest way a real buyer will actually agree to is usually an irrevocable documentary letter of credit (akreditif), confirmed by a bank in your own country when the risk warrants it. Everything below that — documentary collection, a bank guarantee, a post-dated cheque, open account — trades security for goodwill, and each step down the ladder moves more risk onto you. This guide walks through the payment methods a foreign seller meets in Türkiye (Turkey), what each protects against, why a letter of credit pays against documents rather than goods, and which security devices are worth asking for when you must give credit. It ends with enforcement, for when the money does not arrive.

What are your real options for getting paid?

Payment terms in cross-border trade sit on a ladder. At the top, you hold the money before the buyer holds the goods. At the bottom, the buyer holds the goods before you hold anything at all. Turkish buyers are used to the full range; a request for security is not an insult here, it is normal commercial practice.

The right answer is rarely the safest one. It is the safest one your buyer will sign, priced into the deal.

Is advance payment realistic with a Turkish buyer?

Sometimes, yes. When you are securing payment from a Turkish buyer on a first order, made-to-order goods, or an amount small enough that the buyer treats prepayment as a cost of starting the relationship, full advance payment is realistic.

More often you will land in between: a deposit on order, with the balance secured by a letter of credit or released against shipping documents. A deposit does real work: it filters out buyers who were never going to pay, and funds your production risk.

What advance payment does not do is protect the buyer. A seller who insists on the full price upfront from a substantial company will often lose the order to a competitor offering a letter of credit.

How does a letter of credit in Turkey trade actually work?

A documentary letter of credit — akreditif in Turkish — replaces the buyer's promise with a bank's promise. The buyer applies to its bank in Türkiye, and that bank issues a credit in your favour, undertaking to pay you if you present the documents it lists, exactly as listed, within the stated time.

Four things follow, and most disputes come from misunderstanding them:

• The bank pays against documents, not goods. Compliant documents get paid even if the buyer dislikes the shipment; non-compliant documents can be refused even if the goods are perfect.
• The credit is separate from the sale contract. A contract dispute does not, by itself, stop payment under the credit.
• Compliance is strict. A misspelled consignee, a bill of lading dated outside the shipment window, an insurance certificate for the wrong percentage — any of these can be raised as a discrepancy.
• Time is structural. Presentation periods, expiry dates and latest shipment dates are hard edges.

Because the rules are contractual, the credit's own wording governs. Read it the day it arrives, not the day you ship.

Irrevocable or confirmed — which word matters more?

Irrevocable means the credit cannot be amended or cancelled without the agreement of the beneficiary (you) and the banks involved. Under the current ICC rules a credit is treated as irrevocable even where it says nothing on the point — but you should still see the word on the face of the credit, because the rules can be varied by the credit's own terms.

Confirmed means a second bank — usually in your country, or an international bank you already deal with — adds its own undertaking. You then look to the confirming bank for payment, not to the issuing bank in Türkiye. Confirmation is what protects you against issuing-bank failure, currency transfer restrictions and country risk. It costs money, so decide early who bears that cost and say so in the contract.

Why do letters of credit fail, and how do you avoid it?

An LC rarely fails because the bank is dishonest. It fails because the export documents do not match the credit.

Discrepancies on first presentation are common enough in international practice that you should plan for them rather than hope. When one is raised, the bank is entitled to refuse; in reality it usually asks the applicant whether to waive it — which puts you back in the hands of the buyer you were trying not to rely on. If the market has moved against the buyer, the waiver does not come.

A short discipline solves most of this:

1. Get a draft of the credit before issuance and check every document requirement against what you can genuinely produce.
2. Object to any requirement outside your control, and to any deadline your freight forwarder cannot meet.
3. Copy names, addresses and goods descriptions from the credit into your documents character for character.
4. Build a check into your export routine: one person prepares, another checks against the credit text.
5. Present early. Time left before expiry is time to fix a defect.

This is contract hygiene, not courtroom work, and it is the difference between a paid shipment and a claim. If you want the payment mechanism designed alongside the sale terms, that is part of commercial contract work, not something to leave to the shipping department.

What about documentary collection, bank guarantees and standby LCs?

Documentary collection (vesikalı tahsilat) uses banks as couriers, not guarantors. Your bank sends the documents to the buyer's bank in Türkiye, which releases them against payment or against acceptance of a draft. No bank undertakes to pay you. You keep control of the documents — meaningful with sea freight and an order bill of lading, weak where goods can be released without the original.

Bank guarantee (teminat mektubu) is deeply embedded in Turkish commercial life. A Turkish bank undertakes to pay a stated sum on demand or on stated conditions. Independent, first-demand guarantees are the strong form; those requiring you to prove the buyer's default first are much weaker. The text is everything, including the expiry date and where a demand must be delivered.

Standby letter of credit does the same backstop job with letter-of-credit machinery. It suits repeat supply: you ship on open account and draw on the standby only if an invoice goes unpaid.

When is open account acceptable?

Open account means you ship, you invoice, and you wait. It is the buyer's favourite and your largest exposure — rational for a long-standing customer, an affiliate, or where credit insurance covers the balance, and reckless with a company you met at a trade fair.

The decision is not about trust. It is about information. Before extending credit to a Turkish company, look at its trade registry record, its authorised signatories and their authority, its capital and shareholders, whether it faces enforcement proceedings, and whether the entity signing your contract is the one with the assets. Our guide to due diligence on a Turkish company sets out what is publicly checkable and what needs to be requested.

Which security devices work if you must give credit?

Turkish practice offers several instruments, differing sharply in strength.

Cheque (çek). Cheques are widely used in Türkiye as a payment and, in practice, a credit instrument. One presented in time and not honoured is recorded as dishonoured (karşılıksız çek), with consequences that go well beyond a civil debt — the drawee bank is obliged to pay a limited minimum amount per cheque leaf where the cheque is presented within the legal presentation period by a holder other than the drawer, and, on the holder's complaint, Turkish law provides for separate sanctions and cheque-account restrictions against the drawer. We cover the mechanics in our guide to bad cheques in Türkiye.

Promissory note (bono/senet). A properly drawn note is a negotiable instrument and, like a cheque, opens the fast enforcement track below. Formal requirements are strict: a note missing a required element loses that status.

Retention of title (mülkiyeti muhafaza). Under the Turkish Civil Code (No. 4721), retaining ownership of delivered movables works only where the agreement is in official form before a notary and registered at the buyer's domicile. An unregistered clause in your standard terms will not do the job.

Mortgage, pledge and personal guarantees. A mortgage over the buyer's real property or a registered pledge over enterprise assets is the strongest private security, and the hardest to obtain. A shareholder guarantee can work, but Turkish law imposes strict formalities on personal suretyship — have the form checked first.

What happens when payment fails?

Turkish enforcement law is more creditor-friendly than many foreign sellers expect. Under the Execution and Bankruptcy Law (No. 2004) you can start enforcement proceedings without first obtaining a judgment. The debtor can object and shift the matter to court, but the proceeding is quick to open, and where your claim rests on a cheque or promissory note the special negotiable-instruments track is faster still and much harder to derail by a bare objection.

• Precautionary attachment (ihtiyati haciz) — freezing bank accounts and assets before the debtor can move them. Speed is the whole point.
• Enforcement of a foreign judgment (tenfiz) — if your contract sends disputes to your own courts, the judgment still has to be made enforceable in Türkiye under the Private International Law Act (No. 5718) — a separate case with its own timetable.

Which is why the jurisdiction clause deserves attention when the contract is drafted, not when the invoice ages — see governing law and jurisdiction in Turkish commercial contracts. Once money is overdue, our guide on recovering debt from a Turkish company walks through demand, attachment and collection, and our debt collection and enforcement team acts by power of attorney, so you do not travel.

How do we work with foreign sellers?

Most payment problems we see in Turkey were designed into the contract months earlier: a credit requiring a buyer-signed document, a guarantee that expired before the last shipment landed.

We review the payment structure alongside the sale terms: the credit or guarantee text, the security package, the jurisdiction clause, and the delivery and customs terms that decide who holds the goods when. That work sits across commercial contract law and customs and international trade. US-based exporters can start at our US Desk.

We act under a written power of attorney and a written engagement whose scope and terms are agreed in advance, so you know what is covered before we begin. If you have a shipment pending or an invoice overdue, contact us or use our intake form.

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