Textiles complain about late payments by apparel exporters

Israq Textile Mills Limited is supposed to get payment for yarn it supplied to local exporting apparel-makers within three months, but the pay takes as long as six months, according to the miller.   

Managing Director of the mill Md Fazlul Hoque said 98% of his sales to local apparel exporters does not meet with timely payment.  Their current payment overdue is $15 million. 

"We need more working capital and loans thanks to the late payments," Fazlul Hoque, also the vice-president of Bangladesh Textile Mills Association (BTMA), told The Business Standard.

This case is not an isolated one since all the textile mills that supply apparel raw materials to local readymade garment exporters under the back-to-back letter of credit (LC) arrangement face the same problem, according to sector people.       

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

On the same day, the president of the association Mohammad Ali Khokon met the governor of the Bangladesh Bank and mentioned the issue in detail.

Export-oriented garment factories – the main buyer of yarns and fabrics from local textile mills – have acknowledged the late payment, but the apparel-makers have passed the blame on foreign buyers over payment delays or non-receipt of the bill.

But textile mill owners said apparel makers cannot pay late while importing yarn or clothes from abroad. Then why would they be delaying payment to local millers?

Textile mills send the raw materials to export-oriented garments under the back-to-back LC. The process includes sending the proforma invoice to the garments specifying the rates and when it will be delivered. If the buyer agrees, the concerned mill delivers the raw materials through truck receipt and delivery challan.

There are two types of arrangement for the raw material supplied by the mills. The first one is called "at sight condition", under which the apparel-maker will pay the bank price within five days of receiving the document after sending the goods. The second one is "the condition of deferred payment", which stipulates payment within 90 days after receiving the document.

But the textile mill owners complained that the terms of payment are not being met in either case.

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

"In case of yarn and fabric imports from abroad, the exporter has to be paid within five days after the importer receives the bill of lading from the shipping company," he said.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) said, "They [textile millers] have approached the Bangladesh Bank. But who do we go to for late export bills?"

"They eventually get the money, but sometimes we do not get it from foreign buyers. We did not get 15% to 20% of the payments during the pandemic."

Refuting payment delays in almost 100% of the cases, Mohammad Hatem cited the example of his own factory, saying the delays might be in 15%-20% of the cases.

He said apparel-makers pay the foreign textile suppliers mostly on time for the sake of the country's image.

According to BTMA sources, the number of textile mills affiliated to the association is over 1,500, while the number of deemed exporters, who supply the raw materials to export-oriented factories, is about 150.

In the 2020-21 fiscal year, Bangladesh's readymade garment export was about $35 billion. 

Apart from the late payment, the BTMA mentioned six issues in the letter to the central bank. Those include raising the limit of export development fund (EDF) for textile mills to $40 million from the existing $25 million for one year, tripling the bank loan ceiling (cash credit or back-to-back LC) and waiving interest for the pandemic period, otherwise allowing a ten-year repayment period by adjusting the interest and easing textile mills' access to the central bank's technology upgradation fund.