What Is an Avalised Bill of Exchange?
An avalised bill of exchange is a bill of exchange whose payment obligation has been additionally supported by an aval, typically provided by a bank.
In an international trade transaction, the importer may accept a bill payable at a future date. If an acceptable bank adds its aval, the exporter and a potential financier can analyze the payment obligation with the additional credit support of that bank.
Eligible instruments can subsequently be considered for avalised bill of exchange discounting, allowing an exporter to convert a future payment into earlier liquidity.
Simple Definition of an Avalised Bill of Exchange
A bill of exchange is a negotiable payment instrument under which one party directs another party to pay a specified amount to a designated payee, either on demand or at a specified future date.
In a deferred-payment export transaction, the importer may accept the bill and thereby acknowledge its obligation to pay it at maturity.
An aval adds another obligor to the instrument. The aval is commonly provided by the importer's bank and supports payment of the bill if the party whose obligation is avalised does not pay according to its terms.
Avalised or Avalized?
Both spellings refer to the same concept.
Avalised is commonly used in British and international English, while avalized is the American-English spelling.
You may therefore see the instrument described as:
- Avalised bill of exchange
- Avalized bill of exchange
- Bank-avalised bill
- Bank-avalized bill
- Avalised draft
- Bank-supported accepted draft
What Is a Bill of Exchange?
A bill of exchange is widely used in trade where payment occurs after delivery rather than immediately.
Consider an exporter selling machinery to an overseas buyer on 180-day terms.
The exporter ships the machinery today, but the importer does not have to make cash payment for another six months. A bill of exchange can evidence that future payment obligation.
Bills of exchange can also feature in Documents Against Acceptance financing, where commercial documents are released after the importer accepts a time draft.
What Does It Mean When the Buyer Accepts the Bill?
Acceptance is important because it converts the draft into an acknowledged payment obligation of the acceptor under the applicable negotiable-instruments framework.
In a typical trade:
- The exporter and importer agree that payment will be deferred.
- A bill of exchange is drawn for the amount payable.
- The importer accepts the bill.
- The accepted bill becomes payable on the specified maturity date.
At this stage, however, the exporter still principally carries the commercial credit risk of the importer.
What Does the Aval Add?
The aval adds a separate layer of payment support to the bill.
Where the aval is provided by an acceptable bank, a financier can assess the bank's obligation in addition to the buyer's obligation.
The precise legal effect of an aval depends on the governing law, the instrument and the jurisdiction in which it is issued and enforced. This should therefore be reviewed before financing is committed.
Accepted Bill
The importer accepts the future payment obligation. The exporter remains exposed primarily to the buyer's ability and willingness to pay.
Avalised Bill
An additional party, commonly an acceptable bank, adds its payment support to the instrument. This may materially improve its financeability.
Who Are the Parties to an Avalised Bill?
| Party | Role |
|---|---|
| Drawer | The party drawing the bill. In an export transaction this is commonly the exporter or seller. |
| Drawee / Acceptor | The party directed to pay the bill and which accepts the obligation. This is commonly the importer or buyer. |
| Payee | The party entitled to receive payment under the bill, subject to any later endorsement or transfer. |
| Avalising Bank | The bank or other eligible party adding the aval and supporting payment of the specified obligation. |
| Forfaiter / Financier | A bank or finance provider that may purchase or discount the eligible payment claim before maturity. |
Example of an Avalised Bill of Exchange
Assume a European equipment exporter sells industrial machinery worth $5 million to a foreign buyer.
The buyer negotiates 180-day payment terms.
The commercial sequence could look like this:
- The exporter signs a $5 million sales contract.
- The machinery is shipped according to the contract.
- The importer accepts a bill of exchange payable in 180 days.
- An acceptable bank avalises the payment obligation.
- The exporter now holds an accepted, bank-supported future payment instrument.
- Rather than waiting 180 days, the exporter presents the instrument to a forfaiter or trade-finance provider.
- Subject to underwriting, the financier purchases or discounts the payment claim.
- The exporter receives earlier liquidity.
- At maturity, payment is collected according to the instrument and financing structure.
Why Would an Exporter Ask for a Bank Aval?
Selling internationally on deferred terms creates a working-capital problem.
The exporter has already manufactured or purchased the goods and completed shipment, but the cash may not arrive for 90, 180, 360 days or longer.
A bank aval can make that deferred payment obligation more attractive to a financing institution.
This can support:
- Earlier exporter liquidity
- Longer buyer payment terms
- Post-shipment financing
- Forfaiting
- Receivables discounting
- Transfer of certain buyer credit risks
- Improved working-capital predictability
Exporters with broader deferred-payment requirements can also review Financely's post-shipment finance for exporters.
How Is an Avalised Bill Discounted?
Once an acceptable bill exists, the exporter can approach a bank, forfaiter or other trade-finance institution to determine whether the payment claim can be purchased before maturity.
The financier typically evaluates:
- The avalising bank
- The importer
- The exporter
- The amount
- The maturity date
- The currency
- The underlying commercial transaction
- The authenticity of the instrument
- Transfer and endorsement requirements
- Governing law
- Sanctions and jurisdiction risk
- KYC, AML and KYT requirements
Financely provides a dedicated avalised bill of exchange discounting service for qualified export transactions.
Avalised Bills and Forfaiting
Forfaiting is particularly relevant to transferable deferred payment instruments arising from specific trade transactions.
In a typical forfaiting structure, the exporter sells its future payment claim to a financier, generally without recourse for non-payment of the purchased obligation, subject to the agreed transaction terms.
Bills of exchange and promissory notes are common instruments used for this purpose.
The ICC's Uniform Rules for Forfaiting, URF 800, provide a contractual framework that parties can elect to apply to a forfaiting transaction.
Accepted Bill vs Avalised Bill vs Letter of Credit
| Instrument | Primary Payment Support | Typical Use |
|---|---|---|
| Accepted Bill of Exchange | Commercial buyer / acceptor | Deferred-payment sale where the seller accepts buyer credit risk. |
| Avalised Bill of Exchange | Buyer obligation plus aval from an acceptable bank or other aval provider | Deferred export transactions where stronger credit support or discountability is required. |
| Documentary Letter of Credit | Issuing bank undertaking subject to compliant documentary presentation | Trade where the seller requires bank-supported payment mechanics from the beginning of the transaction. |
Companies considering a documentary-credit structure can review Financely's documentary letter of credit services.
Avalised Bill vs Usance Letter of Credit
Both can support deferred payment, but their legal and documentary structures are different.
Under a usance LC, the issuing bank's undertaking arises under the documentary credit and payment occurs according to the credit's terms following a compliant presentation.
An avalised bill instead relies on the bill of exchange and the additional aval placed on or connected with that instrument under the applicable law.
Importers considering bank-supported deferred payment can also review usance letter of credit structures.
Does a Bank Aval Guarantee That the Bill Can Be Discounted?
No.
A bank aval can materially strengthen the payment obligation, but a financier still decides independently whether it wants to purchase or discount the instrument.
Bank acceptability is particularly important.
A financier may decline an instrument because of:
- Weak or unacceptable avalising bank
- Sanctions exposure
- Jurisdictional risk
- Unacceptable maturity
- Problematic wording
- Transfer restrictions
- Questions about authenticity
- Underlying trade concerns
- Documentation deficiencies
- Insufficient transaction economics
What Makes an Avalised Bill Financeable?
Acceptable Avalising Bank
The financier must be comfortable with the institution standing behind the aval, its jurisdiction and its credit quality.
Valid Instrument
The bill must satisfy applicable legal requirements and be capable of the transfer, endorsement or assignment contemplated by the financing.
Genuine Underlying Trade
The exporter should be able to document the commercial transaction that created the payment obligation.
Clear Maturity and Amount
The financier needs a clearly defined payment amount, currency and maturity schedule.
Transferability
The proposed financier must be able to obtain the rights required to collect the payment claim.
Compliance
Exporter, importer, bank, goods, jurisdictions and payment route remain subject to KYC, AML, sanctions and transaction review.
Avalised Bills and Post-Shipment Finance
An exporter does not always need to wait until maturity once the goods have been shipped and an acceptable payment obligation has been created.
Depending on the transaction, post-shipment liquidity may be structured against:
- Avalised bills of exchange
- Accepted drafts
- Documentary credits
- Trade receivables
- Bank-supported payment obligations
Financely's post-shipment financing service covers this wider category of exporter liquidity.
What Information Is Needed to Discount an Avalised Bill?
A serious financing request should normally identify the complete payment and trade structure.
Useful initial information includes:
- Bill face value
- Currency
- Maturity date
- Exporter
- Importer / acceptor
- Avalising bank
- Copy or proposed form of the bill
- Sales contract
- Invoice
- Shipping documentation
- Evidence of acceptance
- Aval documentation
- Applicable law
- Requested financing date
- Prior transaction history where available
How Financely Helps Exporters
Financely provides paid trade-finance advisory for exporters and traders seeking to convert qualifying deferred payment obligations into earlier liquidity.
Depending on the mandate, our work can include:
- Reviewing the bill of exchange
- Reviewing the avalising bank
- Analyzing the underlying commercial transaction
- Assessing transfer and financing mechanics
- Preparing the financing request
- Structuring discounting or forfaiting
- Approaching suitable trade-finance providers
- Coordinating institutional due diligence
- Supporting term-sheet negotiation
- Managing the process toward financing
More complex transactions can also be handled through Financely's broader structured trade finance advisory practice.
Hold an Avalised Bill of Exchange and Want Earlier Liquidity?
Submit the bill amount, currency, maturity, importer, avalising bank, underlying trade and requested financing date.
Financely can assess whether the payment claim is suitable for discounting, forfaiting or another post-shipment financing structure through a paid advisory mandate.
Explore Avalised Bill DiscountingFAQ
What is an avalised bill of exchange?
It is a bill of exchange whose payment obligation has been additionally supported by an aval, commonly provided by a bank. The aval can strengthen the payment claim and potentially make the bill more attractive for discounting or forfaiting.
Who normally provides the aval?
In international trade, the aval is commonly provided by a bank acceptable to the exporter or financing institution. The precise structure depends on the parties and applicable law.
Is an accepted bill the same as an avalised bill?
No. Acceptance establishes the acceptor's payment obligation. An avalised bill includes an additional payment-support obligation from the aval provider.
Can an avalised bill be discounted before maturity?
Potentially. Banks, forfaiters and other trade-finance providers may purchase or discount eligible avalised bills subject to the avalising bank, instrument, tenor, underlying trade, jurisdiction and independent underwriting.
What is forfaiting?
Forfaiting is the purchase of a future trade-related payment obligation on a without-recourse basis under the agreed transaction terms. Bills of exchange are among the instruments commonly used in forfaiting.
Does URF 800 apply automatically?
No. ICC Uniform Rules for Forfaiting apply when the parties expressly state that the relevant forfaiting agreement is subject to URF 800.
Is an aval the same as a letter of credit?
No. An aval supports an obligation evidenced by a negotiable instrument such as a bill of exchange. A documentary letter of credit is a separate bank undertaking governed by its own terms and documentary presentation requirements.
Does a bank aval guarantee financing?
No. The financier independently evaluates the bank, bill, underlying transaction, transferability, maturity and compliance profile before deciding whether to provide financing.
Financely provides paid structured trade finance advisory and transaction placement services on a best-efforts basis. Financely is not a bank or direct lender. The legal treatment of bills of exchange, avals, endorsements and assignments varies by jurisdiction. Financing remains subject to instrument validity, bank acceptability, KYC, AML, sanctions review, applicable law, independent capital-provider underwriting and final approval.
