Glenn,
I do not share your apparent hostility towards collections requiring aval. The big problem with D/A collections which include –say- a full set of BLs is that the buyer can get the goods and then not pay. Requiring aval prevents this from happening.
To me, aval represents a very useful ‘half-way house’ between the pre-shipment ‘guarantee’ of payment that a credit offers and the buyer’s commitment to make payment on taking up documents under a D/A collection.
I also wonder at the scope for URC to define what is the aval obligation, given it is applied to an instrument that has a life independent of the collection and a collection does not create an automatic payment obligation, unlike a doc. credit.
Regards, Jeremy
Avalisation
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GlennRansier_
- Posts: 132
- Joined: Fri Apr 05, 2019 5:19 pm
Avalisation
The joys of typing will never be equal to talking and meetings.
- To Jim, at times a bank has been caught because their internal policy and procedures did not provide for a URC cover letter requesting anything more than what the URC provided for. It’s unfortunate but..
- To Jeremy - I am not necessarily adverse to providing an Aval. However, I am unsure if a URC collection cover letter is really the place to request one. I believe it a bit unfair to add this request when the URC rules do not cover this or define its meaning. As I mention above to Jim, banks were trapped by this. When someone requests me to create a Clean Banker's Acceptance, the request is usually a separate SWIFT or Written request. This allows the decision process to occur and all parties have full understanding of what is expected. While providing an Aval under a URC Collection item may be a useful tool and be readily agreed to by a collecting bank, it should be described in URC and a definition provided. URC is clearly intended to hold a collecting bank harmless from any payment liability. Consider that the next URC cover letter your bank receives states something similar to: "Collection Bank must issue a Payment Suretyship to us covering any unpaid collection amount". Should the bank issue the desired guarantee and if so, is this collection cover letter now to be considered an application and reimbursement agreement? When international standards are defined and adhered with then there are few surprises and little complaints. However, when transactions are transformed without warning and an unsuspecting bank becomes committed to something that was never intended then I believe they have a legitimate compliant. There are all size banks and bankers have very different levels of expertise. When a banker reads URC they have a reasonable expectation of the roles and duties due and currently that does not include the placing of an Aval. I believe that it is a tad unreasonable for every Collection Dept. staff member to know all types of financial instruments/undertakings that a bank may/may not offer and to review the collection cover letter to see if one of these are required of it. Aval is not a common term in the US and it could easily be overlooked or misunderstood and given different countries propensities to call the same thing something different it would be easy to find a bank in a situation it would not have agreed to if an appropriate request had gone to the appropriate processing dept. A bit of a soap box speech but I hope my point is clarified

- To Jim, at times a bank has been caught because their internal policy and procedures did not provide for a URC cover letter requesting anything more than what the URC provided for. It’s unfortunate but..
- To Jeremy - I am not necessarily adverse to providing an Aval. However, I am unsure if a URC collection cover letter is really the place to request one. I believe it a bit unfair to add this request when the URC rules do not cover this or define its meaning. As I mention above to Jim, banks were trapped by this. When someone requests me to create a Clean Banker's Acceptance, the request is usually a separate SWIFT or Written request. This allows the decision process to occur and all parties have full understanding of what is expected. While providing an Aval under a URC Collection item may be a useful tool and be readily agreed to by a collecting bank, it should be described in URC and a definition provided. URC is clearly intended to hold a collecting bank harmless from any payment liability. Consider that the next URC cover letter your bank receives states something similar to: "Collection Bank must issue a Payment Suretyship to us covering any unpaid collection amount". Should the bank issue the desired guarantee and if so, is this collection cover letter now to be considered an application and reimbursement agreement? When international standards are defined and adhered with then there are few surprises and little complaints. However, when transactions are transformed without warning and an unsuspecting bank becomes committed to something that was never intended then I believe they have a legitimate compliant. There are all size banks and bankers have very different levels of expertise. When a banker reads URC they have a reasonable expectation of the roles and duties due and currently that does not include the placing of an Aval. I believe that it is a tad unreasonable for every Collection Dept. staff member to know all types of financial instruments/undertakings that a bank may/may not offer and to review the collection cover letter to see if one of these are required of it. Aval is not a common term in the US and it could easily be overlooked or misunderstood and given different countries propensities to call the same thing something different it would be easy to find a bank in a situation it would not have agreed to if an appropriate request had gone to the appropriate processing dept. A bit of a soap box speech but I hope my point is clarified
Avalisation
Glenn,
While I sympathise with your concerns I would observe that Article 2a states:
‘'Collection' means the handling by banks of documents as defined in sub-Article 2(b), in accordance with instructions received, in order to
i. obtain payment and/or acceptance
or
ii. deliver documents against payment and/or against acceptance
or
iii. deliver documents on other terms and conditions.’
Therefore there is an express acknowledgement in iii that collections needs not necessarily all simply be D/P or D/A.
Also, I would have thought it would be a simple matter to say to collections processing staff (and I think any bank that has not centralised, at least on a ‘regional’ basis, its collections operations is most unwise) that if there is any thing in a collection instruction that seems to go beyond straight D/A, or contains terms you do not understand, refer to a senior colleague.
Lastly, I remain unconvinced that URC can define aval given that the aval itself will not be governed by URC, unless of course a new URC creates a collections specific guarantee of payment of an accepted bill and when the guarantee is given the guaranteeing bank states expressly on the bill that its guarantee is subject to the URC.
Regards, Jeremy
While I sympathise with your concerns I would observe that Article 2a states:
‘'Collection' means the handling by banks of documents as defined in sub-Article 2(b), in accordance with instructions received, in order to
i. obtain payment and/or acceptance
or
ii. deliver documents against payment and/or against acceptance
or
iii. deliver documents on other terms and conditions.’
Therefore there is an express acknowledgement in iii that collections needs not necessarily all simply be D/P or D/A.
Also, I would have thought it would be a simple matter to say to collections processing staff (and I think any bank that has not centralised, at least on a ‘regional’ basis, its collections operations is most unwise) that if there is any thing in a collection instruction that seems to go beyond straight D/A, or contains terms you do not understand, refer to a senior colleague.
Lastly, I remain unconvinced that URC can define aval given that the aval itself will not be governed by URC, unless of course a new URC creates a collections specific guarantee of payment of an accepted bill and when the guarantee is given the guaranteeing bank states expressly on the bill that its guarantee is subject to the URC.
Regards, Jeremy
Avalisation
As a matter of interest, I wonder why and when, the words "aval", "avalisation" were adopted by the English/ American language. Not so long ago, une "lettre de change avec aval" ou "avalisée" was a "guaranteed bill of exchange" I think.
Daniel
Daniel
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HOANGTHIANHTHU_invalid
- Posts: 189
- Joined: Fri Apr 05, 2019 5:15 pm
Avalisation
Hi,
I agree with Jeremy on his interpretation of Article 2 (a) (iii) regarding delivery of documents on other terms and conditions.
In addition to the common terms, i.e., delivery of documents against payment and delivery of documents against acceptance, the collecting bank may be instructed to deliver documents on other terms and conditions which may include:
- delivery of documents against partial payment;
- delivery of documents against promissory note;
- delivery of documents against a letter of undertaking to pay;
- delivery of documents against a signed trust receipt;
- delivery of documents against bank undertaking or avalization.
...
ICC Guide to Collection Operations for URC 522 spends a half page guiding how to handle import collections where the remitting bank authorizes the release of documents to the importer against the importer’s acceptance, coupled with the importer’s bank avalizing the bill of exchange. However, it is regret that this issue is not included in URC 522.
Regards,
Duc N.H
I agree with Jeremy on his interpretation of Article 2 (a) (iii) regarding delivery of documents on other terms and conditions.
In addition to the common terms, i.e., delivery of documents against payment and delivery of documents against acceptance, the collecting bank may be instructed to deliver documents on other terms and conditions which may include:
- delivery of documents against partial payment;
- delivery of documents against promissory note;
- delivery of documents against a letter of undertaking to pay;
- delivery of documents against a signed trust receipt;
- delivery of documents against bank undertaking or avalization.
...
ICC Guide to Collection Operations for URC 522 spends a half page guiding how to handle import collections where the remitting bank authorizes the release of documents to the importer against the importer’s acceptance, coupled with the importer’s bank avalizing the bill of exchange. However, it is regret that this issue is not included in URC 522.
Regards,
Duc N.H
Avalisation
Daniel,
At least in the UK I think the simple reason is that it is not considered that there is any statute law concerning ‘guaranteeing’ payment of a bill in the manner envisaged by the continental European concept of ‘aval’ and UK banks started receiving regular requests for ‘aval’ some decages ago (if not before).
While section 28 of the Bills of Exchange Act 1882 concerns an ‘Accommodation bill or party’, and an accomodation party can be an indorser, it is not considered the indorsement by an accomodation party equate to aval.
Regards, Jeremy
[edited 6/14/2010 11:58:53 AM]
At least in the UK I think the simple reason is that it is not considered that there is any statute law concerning ‘guaranteeing’ payment of a bill in the manner envisaged by the continental European concept of ‘aval’ and UK banks started receiving regular requests for ‘aval’ some decages ago (if not before).
While section 28 of the Bills of Exchange Act 1882 concerns an ‘Accommodation bill or party’, and an accomodation party can be an indorser, it is not considered the indorsement by an accomodation party equate to aval.
Regards, Jeremy
[edited 6/14/2010 11:58:53 AM]
Avalisation
Jeremy,
I have always wondered if UK had joined the Geneva conventions about BoEs. I think not and that UK has a specific law.
Daniel
I have always wondered if UK had joined the Geneva conventions about BoEs. I think not and that UK has a specific law.
Daniel
Avalisation
As Glenn has rightly pointed out there are different types of bankers with different levels of expertise. When URC does not define or discuss about Aval, the question is how far is it justified to include an instruction which puts obligation on the presenting bank to effect payment. If the intention is to secure payment then letter of credit is the mechanism that needs to be looked at.
We handle quite a few collection documents , but instructions for avalisation are rare. However this rare document could land the bank in trouble , if the instruction on the covering schedule of the collecting bank is missed out by the staff handling such document.
Per se we are not against such instructions, but Possibly we need to look at a suitable mechanism wherein the presenting bank is sufficiently informed about the avalisation instruction of the collection documents.
Regards
Vishu
We handle quite a few collection documents , but instructions for avalisation are rare. However this rare document could land the bank in trouble , if the instruction on the covering schedule of the collecting bank is missed out by the staff handling such document.
Per se we are not against such instructions, but Possibly we need to look at a suitable mechanism wherein the presenting bank is sufficiently informed about the avalisation instruction of the collection documents.
Regards
Vishu
Avalisation
Vishu,
I certainly understand your concerns. However I do disagree with your statement that ‘If the intention is to secure payment then letter of credit is the mechanism that needs to be looked at.’ This is because a doc. credit is only suitable where the seller requires a PRE-shipment ‘guarantee’ of payment. Given the period of bank exposure is shorter, and the avalising bank does not have to examine documents for compliance, aval ought to be much cheaper than a doc. credit and if all the seller wants to do is ensure the buyer cannot obtain the goods (assuming a full set of BL or goods consigned to the presenting bank with their permission) without paying then aval is ideal.
Regards, Jeremy
I certainly understand your concerns. However I do disagree with your statement that ‘If the intention is to secure payment then letter of credit is the mechanism that needs to be looked at.’ This is because a doc. credit is only suitable where the seller requires a PRE-shipment ‘guarantee’ of payment. Given the period of bank exposure is shorter, and the avalising bank does not have to examine documents for compliance, aval ought to be much cheaper than a doc. credit and if all the seller wants to do is ensure the buyer cannot obtain the goods (assuming a full set of BL or goods consigned to the presenting bank with their permission) without paying then aval is ideal.
Regards, Jeremy