Stop Payment

Stop Payment refers to a payer (such as an importer) requesting the bank to stop payment of a sum after the bank has issued a letter of credit, draft, or check. It is common in foreign trade settlement when the buyer discovers seller fraud, serious non-conformity of goods, forged documents, or contract disputes, and may issue a stop payment notice to the bank. However, note: if the bank has already accepted or negotiated, stop payment is usually ineffective and may lead to legal disputes. Stop Payment differs from 'Dishonor': dishonor is the payer actively refusing payment, usually when documents are non-conforming; stop payment is requesting the bank to halt an already initiated payment process. It also differs from 'revocation of a letter of credit', which requires the applicant to apply to the issuing bank and obtain the beneficiary's consent. In practice, stop payment is often used under the fraud exception principle in letters of credit, but court injunctions for stop payment must be used cautiously to avoid damaging bank reputation. Enterprises should prioritize resolving disputes through negotiation or arbitration and avoid abusing stop payment.