Garment accessories makers seek simpler back-to-back LC process

The Chattogram Garments Accessories Association (CGAA) has urged Bangladesh Bank to simplify the documentation and payment process for back-to-back letters of credit (LCs), saying repeated approvals are delaying payments and squeezing the working capital of 100% deemed exporters.

In a letter to the central bank governor on 9 September, the association said manufacturers of garment accessories and packaging materials face prolonged delays because delivery challans, commercial invoices and other LC documents often have to pass through garment factories before reaching banks. 

The letter was signed by Jamil Ahmed, acting president of CGAA and managing director of Britannia Label BD Ltd.

The association said that even when deemed exporters prepare all LC-required documents, they cannot always submit them directly to the concerned bank. Instead, documents are first sent to the garment factory for an authorised person's signature or "party acceptance", after which the factory submits them to the bank. 

The bank may then return them to the factory for another approval or acceptance before payment or maturity is processed.

CGAA said the repeated movement of documents between deemed exporters, garment factories and banks causes processing delays, duplicate verification and approval, delayed payment or maturity, blocked working capital and cash-flow pressure. 

It also raises banking and administrative costs and can result in discrepancy charges for procedural issues beyond suppliers' control.

CGAA seeks UCP 600-compliant LC process

The association has sought a policy review of whether the practice complies with the International Chamber of Commerce's UCP 600, the internationally recognised rules governing documentary credits.

It argued that required documents should primarily be determined by the relevant LC. Where documents are properly prepared and compliant, additional post-delivery party acceptance or repeated approval should not be mandatory unless specifically required by the LC, law or Bangladesh Bank directives.

CGAA asked Bangladesh Bank to review the practice and issue clear guidelines for commercial banks. Its seven-point proposal includes allowing deemed exporters to submit documents directly to banks; removing mandatory party acceptance unless explicitly required by the LC; requiring banks to examine documents strictly under LC terms and, where applicable, UCP 600; and notifying suppliers of discrepancies within prescribed rules and timeframes.

It also called for an end to repeated submission of documents to garment factories solely for internal approval, no discrepancy fees for bank processing delays or issues beyond suppliers' control, payment or maturity within the prescribed timeframe for compliant documents, and a uniform, simplified, digital and time-bound SOP for back-to-back LCs involving 100% deemed exporters.

Industry seeks stakeholder discussion

CGAA said a practical solution could be developed through discussions among Bangladesh Bank, commercial banks, garment manufacturers and deemed exporters. 

It requested an open discussion to identify the root causes and establish a transparent, faster procedure.

The association said reducing unnecessary document movement, duplicate approvals, payment delays and unjustified charges would help deemed exporters manage working capital and cash flow more effectively while improving export-sector efficiency.