Important points about bill avalisation that you should know

A lot of trading businesses opt for avalisation bills of exchange to make their payments more secure. An avalised bill of exchange is a type of bank guarantee that is used by trading businesses to partially or fully pay a bill if the drawer of the bill is unable to make the payment in time. Hence, bill avalisation makes the payment more secure and the trading businesses can be more sure that they will receive the payment they deserve in time. 

If you are also planning to opt for bill avalisation then you should first  know the following important point: 

 

It is vital that you obtain the aval from a financial institution before the creditor loses control of the goods. This is generally achieved by making delays in the shipment of the goods until the avalised bill has been received. Other than this, it can also be achieved by making sure that the documents of title to the goods, which is a full set of original Bills of Lading, remain under their control until receiving the avalised bill. This can be achieved by sending the necessary documents through the banks on a ‘collection’ basis as mentioned above. 

 

Another point that you should remember is that avalisation can only apply to term bills of exchange that mature at a future date. This means, if the maturation date of the bill of exchange has already passed then it can not be availed. 

 

You should also know that once the bill has been avalised by the banks, it cannot be canceled without the authority of the drawer and it acts as an unconditional guarantee for the drawer. This rule of avalisation benefits the creditor greatly but is considered to be less advantageous to the debtor. 

 

The aval is only as good as the standing of the bank giving it. The financial strength of the bank and the country in which the aval is arranged should be checked with your bankers.

 

Other than this, the drawer is also recommended to obtain the agreement of the drawee to arrange for their bankers to avalise the bill before presenting it for acceptance.