Textiles complain about late payments from garment exporters

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Israq Textile Mills Limited is supposed to be paid for the yarn it has supplied to local exporting garment makers within three months, but payment takes up to six months, according to the miller.

The factory’s general manager, Md Fazlul Hoque, said 98% of its sales to local garment exporters are not paid on time. Their current overdue payment is $15 million.

“We need more working capital and loans because of payment delays,” Fazlul Hoque, also vice president of the Bangladesh Textile Mills Association (BTMA), told The Business Standard.

This case is not isolated since all the textile factories that supply raw materials for clothing to the local ready-to-wear exporters under the face-to-face letter of credit (LC) agreement are faced with the same problem, according to industry officials.

BTMA approached the central bank on Sunday to find a solution to the problem. In a letter sent to the Bangladesh Bank, the BTMA demanded that the banks be given clear instructions to ensure payment within the stipulated time. The association also demanded interest if payment was not made on time.

On the same day, the chairman of the association Mohammad Ali Khokon met with the governor of Bangladesh Bank and discussed the matter in detail.

Export-oriented garment factories – the main buyer of yarn and fabric from local textile mills – acknowledged the late payment, but garment manufacturers blamed foreign buyers for late payment or non-receipt of the invoice.

But textile factory owners said garment makers could not pay late when importing yarn or garments from overseas. So why would they delay payment to local millers?

Textile factories send raw materials to garments for export under back-to-back LC. The process includes sending the proforma invoice to the garments specifying the rates and the delivery date. If the buyer agrees, the factory concerned delivers the raw materials by delivery truck and delivery challan.

There are two types of arrangement for the raw material provided by the mills. The first is called “condition at sight”, under which the garment manufacturer will pay the bank price within five days of receipt of the document after the goods have been sent. The second is the “deferred payment term”, which stipulates payment within 90 days of receipt of the document.

But textile factory owners have complained that payment terms are not met in either case.

Khorshed Alam, chairman of Little Star Spinning Mills Limited, told The Business Standard that yarn and fabric suppliers are now facing payment delays of three to six months. In some cases, payment is made after nine months. As a result, each factory needs about ten times more working capital than usual, or has to continue production with loans.

“In the case of yarn and fabric imports from overseas, the exporter must be paid within five days of the importer’s receipt of the bill of lading from the shipping company,” he said.

Mohammad Hatem, Executive Chairman of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) said: “They [textile millers]approached the Bangladesh Bank. But who do you turn to for overdue export invoices?”

“They end up getting the money, but sometimes we don’t get it from overseas buyers. We haven’t gotten 15-20% of payments during the pandemic.”

Refuting late payments in almost 100% of cases, Mohammad Hatem cited the example of his own factory, saying that late payments could be in 15% to 20% of cases.

He said garment makers pay foreign textile suppliers mainly in time for the good of the country’s image.

According to BTMA sources, the number of textile factories affiliated to the association is more than 1,500, while the number of reputable exporters, which supply raw materials to export-oriented factories, is about 150.

In the financial year 2020-2021, Bangladesh’s ready-to-wear apparel exports amounted to around $35 billion.

Besides the late payment, BTMA mentioned six issues in the letter to the central bank. These include increasing the Export Development Fund (EDF) limit for textile mills to $40 million from the existing $25 million for one year, tripling the ceiling for bank loans (credit in cash or backed LC) and the removal of interest for the pandemic period. , otherwise allowing for a ten-year repayment period by adjusting interest and making it easier for textile mills to access the central bank’s technology upgrade fund.

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