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RMG makers hamstrung by millions in due pay

Arifur Rahaman Tuhin
08 Nov 2022 00:00:00 | Update: 08 Nov 2022 00:19:22
RMG makers hamstrung by millions in due pay

Dozens of buyers are not clearing millions of USD in export bills, putting the squeeze on Bangladesh’s apparel exporters who are already tackling a multitude of issues, such as dwindling order volumes and clothes worth $1 billion being stuck in warehouses.

Industry leaders told The Business Post that their buyers – who are neither bankrupt nor show any signs of downsizing – are yet to make more than $100 million in payments to the local readymade garment industry.

Besides, additional export payments to the tune of over $100 million remain unpaid till date after some of the buyers declared bankruptcy. Apparel exporters have no clue when the buyers will clear due export bills.

This issue has become a cause for serious concerns for the apparel industry, as they are left to deal with the fallout – clearing back-to-back Letters of Credit (LC), making payments on raw material imports, and paying workers.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Faruque Hassan said, “Many buyers are not paying export bills, but exporters are afraid or hesitant to share the issue.

“Exporters think that if they share this issue, buyers could cut ties with them. The local banks too are pressuring exporters to clear LCs, or else their authorised dealer (AD) licenses for forex trade could get cancelled. It has become a major issue for the country’s apparel industry.”

What’s going on?

Apparel exporters say most of them are doing business through LCs, and exporting their products under the free-on-board (FOB) method.

Under this method, an exporter completes their inspection by a buyer-nominated third-party, and then goods are handed over to the nominated Clearing and Forwarding (C&F) agent. This completes the process, and exporters become eligible to receive payment.

Buyers usually clear payment within a month after a complete export procedure. But many small buyers take up to 120 days to clear payments. There are little to no examples that buyers had taken more time than the above mentioned period.

After Russia invaded Ukraine in February, many buyers stopped following deadlines or agreements, and resorted to delaying payments. A number of buyers deferring payments have asked not to disclose their names in a bid to safeguard reputation, exporters say.

Nipa Group Managing Director Md Khosru Chowdhury said, “Three of our buyers – two based in the USA and one in India – did not pay nearly $22.5 million in export bills, though the payment deadline had already passed.

“A US-based buyer is yet to pay an $18 million bill to us and $0.48 million in dues to another supplier. Besides, an Indian buyer did not pay the $4 million export bill as yet. They are seeking more time to clear payments due to the ongoing global economic situation.

Chowdhury added that despite the setbacks, he has to pay his workers and settle import payment bills regularly.

A Savar-based factory owner, who prefers to be anonymous, said, “I shipped clothes worth nearly $2 million to American fashion company YMI Jeans this March. But my buyer has only paid 50 per cent of the bill so far.”

“I had to take out a loan to clear import LCs and pay workers’ wages. I do not know when we will get paid, but I am unable to share the issue with others due to the buyer’s pressure.”

Another apparel exporter based in Gazipur said, “A UK-based fashion brand, NorthSouth Clothing, received readymade garments worth $0.9 million. The payment deadline has already passed, but the buyer is yet to settle the bill.

“A US-based clothing brand, Virtual Fashion Inc, has yet to pay a nearly $1 million in export bill. A Dubai-based brand also did not clear a $0.45 million bill. I do not know what I should do as I am navigating through a severe financial crisis.”

BGMEA Vice-President Shahidullah Azim said, “Although we do not have any actual information, I think hundreds of millions of USD export payments have been deferred.”

Payment from bankrupt buyers uncertain

After the Covid-19 struck nations across the globe, many western buyers – such as JCPenney and Edinburgh Woollen Mill (EWM) – declared bankruptcy, owing millions of USD export payments to dozens of Bangladeshi apparel exporters.

After some buyers declared bankruptcy, due payments fell into uncertainty, and the exporters became uncertain when they would receive their pay or whether they would get paid at all.

Amid the crisis, many reputed buyers are becoming insolvent too, while few others are facing severe financial crises.

For this reason, hundreds of millions of USD in export payments have yet to be cleared, and nearly $1 billion in apparel items are yet to be shipped, even though the goods are ready-to-ship.

BGMEA Vice-President Azim said, “LPP, a polish fashion brand, did not receive around $400 million in ready apparel items, and hundreds of millions of dollars in export payment dues to other buyers who had already declared them bankrupt.”

A long-term apparel exporter said, “As far as I know, Kick, LPP, and Gap are likely to declare bankruptcy as their businesses are faltering. Before receiving orders from the buyers, exporters should clarify their ongoing business situation.”

Meanwhile, BGMEA President Faruque Hassan said, “Our association had asked its members to provide information about payment delays along with the buyers’ names. But most of the members are not following our instructions.

“If we do not have solid information, how will we take the initiative to resolve this crisis? I have requested the central bank to refrain from issuing forced loans on a case-by-case basis, and instead contact buyers to practice fair business policy.”