In commercial relationships between companies, advance payments, payment plans, collateral arrangements and financing agreements are often treated as routine, standard-form documents. In reality, the late-payment rules and the legal nature of collateral structures set out in the Turkish Commercial Code can expose a company to serious collection and liability risk in 2026 if these documents are not drafted correctly.
What Legal Risks Does an Advance Payment Create for a Company?
Because an advance is a payment made before the other party has performed its own obligation, recovering the advance becomes a separate legal battle if the work is never delivered, or is delivered incomplete.
Consider, for example, a manufacturing company that exports goods: it collects part of the order price as an advance from an overseas buyer and begins production. If the buyer later refuses to pay the remaining balance after delivery, the company must not only try to collect payment for the goods it delivered, but also settle the accounting for the advance it received on the undelivered portion strictly on the basis of the contract terms.
When the contract does not clearly specify which obligation the advance corresponds to, the conditions for its refund, and the order in which it is to be offset, the resulting dispute typically ends up in litigation or mediation. This is why, during the drafting and review of commercial contracts, the advance payment provisions need to be addressed separately and explicitly.
Which Provisions Are Decisive in Payment Plan Agreements?
If a payment plan agreement does not clearly set out due dates, the default interest rate, and how the moment of default is determined, it becomes disputable which interest rate applies to a late payment.
In supplies of goods and services between commercial enterprises, under Article 1530 of the Turkish Commercial Code, a debtor falls into default without any need for a formal notice if payment is not made by the due date set in the contract. If no due date has been set, this period begins automatically thirty days after receipt of the invoice. The applicable default interest rate is announced each year by the Central Bank of the Republic of Turkey, and the rate for 2026 is lower than in the previous year.
For example, a supplier company signs a six-month payment plan with a buyer, but the plan only states that payment will be made in monthly instalments, without specifying which amount falls due on which date. When the buyer delays an instalment, the supplier has difficulty proving the exact date on which default began.
For this reason, a payment plan that sets a separate due date for each instalment allows the moment of default to be established without dispute.
Why Does the Difference Between a Letter of Guarantee, a Surety and a Pledge Matter?
Unlike a surety agreement, a letter of guarantee is an independent guarantee undertaking, separate from the underlying debt, and this distinction directly determines when and how the collateral can be called upon and converted to cash.
Under the Turkish Court of Cassation’s settled case law, this distinction is well established: bank letters of guarantee are treated as an independent guarantee contract not subject to the defenses available under a surety. By contrast, a surety under the Turkish Code of Obligations is an accessory obligation tied to the underlying debt, so the surety’s liability ends once the underlying debt ceases to exist.
For example, a construction company provides the employer with a bank letter of guarantee against the risk that it might fail to perform its obligations. If the employer claims there has been a breach of contract and seeks to call the guarantee, the company can generally object only on the basis of the letter’s own terms (validity period, amount, conditions for demand); whether a breach actually occurred under the underlying contract becomes a separate dispute to be litigated on its own.
This is why, when choosing the type of collateral, a company should determine in advance against which risk, and how independent a guarantee, it actually wants to provide.
What Risks Do Companies Face in Financing Agreements?
Financial leasing, factoring and similar financing agreements are offered by entities licensed under Law No. 6361 on Financial Leasing, Factoring, Financing and Savings Financing Companies (whose title was updated by a 2021 amendment), and the termination, early termination and collateral provisions of these agreements directly affect a company’s cash flow.
For example, a logistics company acquires its vehicle fleet through financial leasing and pays the rental fee in monthly instalments. If the company falls behind on instalments for a period, the agreement’s early termination and vehicle repossession provisions can bring the company’s operations to a standstill.
In factoring agreements, it matters whether the assigned receivable is genuine and not already subject to litigation. If the receivable turns out to be invalid, the company can find itself facing a repayment obligation toward the factoring company. On this point, the legal steps encountered in the course of collecting a company’s receivables can also serve as a reference point when assessing how sound an assigned receivable actually is.
Having financing documents reviewed in advance as part of a commercial contracts engagement makes it possible to spot these risks before the contract is signed.
In What Order Should a Contract Be Checked Before Signing?
For a commercial contract that combines advance payment, payment plan, collateral and financing elements, review should generally follow a four-step sequence.
- Clearly state which obligation the advance corresponds to and the conditions for its refund or offset.
- Set a separate due date and applicable interest rate for each instalment in the payment plan.
- Define the type of collateral (letter of guarantee, surety, pledge) and the conditions for calling it in the contract.
- If a financing agreement is involved, separately review early termination, collateral, and the nature of any assigned receivable.
Carrying out these checks before the contract is signed allows the company to know in advance which provision it can rely on in the event of a dispute. Ongoing monitoring of a company’s contracts allows these risks to be managed as a continuous process rather than through a one-off review.
In short, each type of agreement used in commercial and financial transactions follows its own legal logic, and conflating that logic can expose a company to unexpected collection or liability risks.
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