With or Without Aval? A Small Question That Changes the Risk in Documentary Collections

Introduction

In documentary collections under URC 522, things often run on familiar rails—documents sent, acceptance obtained, maturity awaited. Most of the time, the collecting bank’s role remains strictly mechanical.

Then, occasionally, a small question appears: “With or without avalization?”

It sounds like a minor procedural choice. In reality, it quietly shifts the nature of the transaction—from relying solely on the importer’s promise to introducing a bank’s payment undertaking.

This Q&A looks at what avalization really means in practice, why a collecting bank might raise it, and how exporters should think about the choice when it is put on the table.

Question

Dear Mr. Old Man,

We have forwarded documents to the importer’s bank on a collection basis under URC 522.

In our previous transactions, the collecting bank consistently issued an MT410 message confirming receipt, indicating the maturity date, and without any request for avalization.

However, in this case, the collecting bank has asked whether the collection should be handled with or without avalization.

We would appreciate your guidance on the following points:

1. From the exporter’s perspective, which option is preferable: with avalization or without?
2. If avalization is requested, who typically bears the related charges?
3. Given that avalization was not requested in previous transactions, what might explain this change in the collecting bank’s approach?
4. If avalization is accepted, does it constitute merely a payment guarantee by the importer’s bank, or does it imply a commitment to make payment at maturity?

Thanks and best regards,

Obidur

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Answer

Dear Obidur,

Thank you for your thoughtful questions.

1. From the exporter’s perspective, a collection with avalization is generally preferable. When a draft is avalized, the collecting bank adds its guarantee to the importer’s acceptance. In effect, the bank undertakes to pay at maturity even if the importer fails to do so. This significantly strengthens the security of payment compared to a standard documentary collection under URC 522.
2. Aval charges are typically for the account of the importer, as the aval is granted on its behalf. However, this is ultimately a matter of commercial agreement between the parties and should be clearly stated in the collection instruction or covering schedule.
3. Avalization is not common in routine collections, so the change in approach may reflect the collecting bank’s internal credit considerations or a specific request/arrangement with the importer. It may also be a commercial offering by the bank, but it would be safer not to assume the reason without confirmation.
4. Avalization goes beyond a simple “comfort” or informal guarantee. It is a firm and independent payment undertaking by the avalizing bank on the bill of exchange. The bank is obliged to pay at maturity in accordance with the terms of the draft, without requiring further action from the exporter beyond proper presentation.

I hope this clarifies the position.

Best regards,
Mr. Old Man