Understanding Co-Acceptance and Avalization in Collections

Intro:

When documentary collections involve terms like co-acceptance or avalization, collecting banks can find themselves on the hook — often without fully realizing the implications. Two related questions from SAR highlight a common confusion: What happens when a bank co-accepts a bill? And in cases of avalization, who should the bill be drawn on?

In this Q&A, Mr. Old Man breaks down the obligations, risks, and best practices for banks handling avalized collections — with a reminder that once you say “we’ll pay,” you’d better mean it.

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QUESTION

Dear Mr. Old Man,

We would appreciate your expert advice on two related matters involving avalization and co-acceptance of bills under documentary collection:

1. We received a document for collection from Bank A with the instruction: “90 days D/A co-accepted by bank”. Our bank sent an MT499 to confirm: “The documents have been co-accepted by us and we will make payment on due date”. Documents were released to the drawee. However, on maturity, the drawee could not pay, and Bank A is now requesting us to effect payment. Are we obligated to pay?
2. In another case, documents were presented with the instruction: “Release against acceptance and avalization by collecting bank.” Should the bill of exchange in such case be drawn on the importer (drawee) or on the collecting bank?

Looking forward to your guidance.

Best regards,

Sam

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ANSWER

Dear Sam,

Great questions — and they go hand in hand, so I’ll answer them together.

1. Co-acceptance = Commitment to Pay

In the first case, yes, your bank is obligated to make payment on the due date.

By issuing an MT499 confirming that your bank co-accepted the documents and would pay on maturity, you essentially avalized the bill of exchange — i.e., you guaranteed payment regardless of whether the drawee/importer has sufficient funds at maturity.

This is very similar to when a collecting bank is instructed to release documents against:

• The drawee’s acceptance of the bill of exchange, and
• The collecting bank’s avalization added to the bill.

In both scenarios, the collecting bank takes on a payment obligation independent of the drawee’s performance. So once your bank provided that co-acceptance, Bank A rightfully expects you to pay, even if the drawee defaults.

2. Avalization: Who’s the Drawee?

On your second question:

Even when avalization is requested, the bill of exchange must still be drawn on the drawee/importer, not on the collecting bank.

Avalization simply means the bank is guaranteeing the drawee’s payment — not becoming the drawee itself.

Here’s a simple breakdown:

The bill of exchange is drawn on the importer (drawee), who is primarily obligated to pay at maturity.

The collecting bank adds its aval, meaning it guarantees payment if the drawee fails to pay on the due date.

3. A Note on Practice & Caution

Avalization in documentary collections is rare and not governed by URC 522. From my experience, fewer than 1 in 100 collection instructions include it.

Why so rare?

• Not regulated by URC, so unclear rules.
• Most collecting banks won’t add an aval unless a prior financing agreement exists.
• Refusal to aval can delay document release to the importer.

So if an exporter wants this kind of structure, they should:

• Confirm in advance that the importer’s bank agrees to avalize, or
• Consider using a documentary credit (LC) with confirmed payment terms.

The idea of including avalization provisions in future URC revisions is worth exploring, as it would clarify responsibilities and prevent confusion like in your first scenario.

Conclusion:

• Yes, your bank must pay under co-acceptance, even if the drawee defaults.
• No, the bill of exchange should not be drawn on the collecting bank, even in avalization cases — it should be drawn on the importer.
• Avalization = bank’s guarantee, not substitution as drawee.

Hope this clears up the matter.

Kind regards,

Mr. Old Man