FROM THE EDITOR-IN-CHIEF’s DESK…
I was surprised when a top exporter rang me up to understand payment terms in Bangladesh… On deeper discussion, he shared that buyers were becoming very difficult on payment terms and even the biggest of buyers did not want to work on LC at sight.
This is really bad news, considering that the industry is already facing a fund crunch and an average 8-10% of turnover value of an exporter is outstanding, because of various reasons from delay in GST refund to non-payment of RoSL… Not only this, there are many other liquidity issues that are forcing exporters to refuse orders on grounds of viability. I have heard the most unlikely of exporters admitting to letting go of orders they would have in routine picked up. No one can afford to pick up an order just for the sake of it and keep buyers happy.
The reality is that exporters across the board are finding it difficult to keep their factories running, as fixed cost of labour, staff and infrastructure is eating into their financial standing. The bigger the factory, the bigger the cheque!
Now with buyers preferring LC on DA terms of 30 days onwards, the situation has become very critical. Many of my exporter friends share that in some cases buyers are asking for as much as 120 days’ credit post receiving shipment and even then, regular follow-up is required to get the payment.
And on top of that if the shipped programme doesn’t hit the right note with customers, small excuses are cited as reasons for rejecting orders, or asking for huge discounts…
For a company of size Rs. 100 crore, an additional working capital of around Rs. 10 crore would be required for a 2-month period, the time it would require for payment realisation. This is in addition to the working capital requirement for 3 months (garmenting cycle from order to delivery). Considering that the prevailing interest rate today is around 11%…, against this if we see the industry average profit margins of 5%, how then is the industry going to survive the tougher lending norms and tighter money supply... Where is the incentive left to work?
Sadly, the Government is not intervening in the matter, so that such malpractices can be curbed… Many years ago, when the industry was facing issues of fraudulent buyers, the Government had actively promoted the ECGC Limited, as an insurance against such buyers, but the same is not popular with the exports.
What the industry needs is some regulations… The Bangladesh Government is known to take pro-active measures to protect exports and ensure that payments are duly received.
In such tough times, when the exporter is surrounded by so many problems, the Government has to be more pro-active… I just hope it happens before it is too late.