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Avalisation of a Bill, or Aval, is a promise by a bank to pay a Bill of Exchange. It is a promise to pay on the due date that can’t be taken back. Under a trade contract, exporters may need a third party, usually a bank, to guarantee payment of a bill of exchange drawn on an importer. This is called avalisation of a Bill(Aval). It can be given if the exporter is asked for it. A bank promises to pay no matter what if the drawee doesn’t pay.
Avalisation of a Bill (Aval) gives the exporters the assurance that they will get paid. This means that the bank takes on the risk of payment instead of the importers. This bill can be used or discounted to negotiate improved credit terms and can improve the trading relationship with the importer.
For bill avalisation, the following items can be used as collateral:
1. Standard collateral: cash in a special bank account.
2. Non-standard security: property, equipment, and vehicles that can be moved, goods in circulation, or other collateral required by law.