Rejection of Payment refers to the act in international trade whereby the buyer or the bank refuses to pay for goods or to honor a draft. It commonly occurs in Letter of Credit (L/C) and documentary collection (D/P, D/A) transactions. Under an L/C, the issuing bank may reject payment due to discrepancies in documents, forged documents, or an expired L/C; under documentary collection, the buyer may refuse to pay and take up documents due to issues with goods quality, market changes, or financial difficulties. Rejection of payment not only prevents the seller from recovering payment but may also lead to risks such as cargo detention at the port, storage fees, and price reductions for disposal. Unlike "Rejection of Goods," rejection of payment focuses on the payment stage, while rejection of goods focuses on the goods acceptance stage. Foreign trade practitioners should strictly review L/C terms to ensure document compliance, specify in the contract the handling methods after rejection of payment, such as claims and arbitration, and may also insure export credit insurance to mitigate risks.
📝 Examples
1. Due to the significant depreciation of the currency in the buyer's country, the buyer's capital chain broke, and they refused to honor the matured draft under D/P, resulting in our goods being stranded at the port and incurring high container demurrage charges. (Note: Under D/P collection, if the buyer refuses to pay, the seller must handle the goods on their own.)
2. The issuing bank refused payment on the grounds that "the bill of lading date was later than the latest shipment date stipulated in the letter of credit." We immediately contacted the shipping company to issue a certificate and requested the buyer to accept the discrepancy. Eventually, the buyer agreed to make payment. (Note: Under a letter of credit, if payment is refused due to discrepant documents, it can be resolved through communication or by amending the credit.)
💡 Foreign Trade Tips
Foreign trade terms are the foundation of international business communication
Trade practices may vary slightly by country; pay attention when using them
When using terms in contracts, specify the applicable version (e.g., Incoterms 2020)
For unfamiliar terms, use GlobalSync's multilingual email helper to confirm with your partner