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Textile Today Question of the Month
We see, a few days ago, a French brand took an attempt to declare itself bankrupt. And we observed the same attempts during the Corona by some other US, UK and EU brands. They did not pay their suppliers, also they closed their local offices that triggered the disastrous situation for suppliers and employees of local offices (of the brands). This scenario proves that Bangladesh has lost its control of financial proprietary by allowing open terms to customers who don’t deserve it. Earlier, to buy products from Bangladesh a goods LC was required or there was no supply.
What steps can the Bangladesh government and leading associations take to avoid such a one-way interests-based business process?
Rubana Huq, President, BGMEA
Currently, around 44% of the transactions are being done through LC. The rest is through contracts. This makes us vulnerable and takes us to the point where we face complete uncertainty. The only way out acceptable to all parties could be a risk mitigation process through credit insurance.
Morshed Sarwar (Sohel), Vice-President (Finance), BKMEA
An open account can be a solution. Now many companies are working in Bangladesh by taking those opportunities, we might reduce our risk factor.
Even with LC, we have to be more careful to avoid such risky situations by following the right incoterms. For example, many garments exporters still do FOB which is wrong. It should be FCA.
Akbor Haider Munna, Deputy Managing Director, Youth Group
Once again Bangladesh is becoming RMG brands heaven destination after Covid-19 effects. But this heaven will not last if the global brands, European Union and other sourcing countries will not keep their commitments and secure the financial inconvenience that is corroding our decade long relations.
Steps are recommended:
- Sourcing countries and European Union should jointly address issues relating to payments.
- Govt can intervene to settle any financial claimants raised by suppliers thru bilateral talks and helps to strengthen ties.
- All agreements should pertain to both parties’ interests equally and describing the repay mechanism.
- A joint fund can be raised for protecting affected workers and factories.
Maheer Mannan, Deputy Managing Director, Shangu Tex Ltd.
Firstly, it is obvious that no brand wants to declare bankruptcy. It is a big step if a brand chooses to do so. It damages the brand’s reputation and the company moves close to liquidation. It should be noted that when a brand declares bankruptcy, its liabilities should fall to the associations it works with. Many brands are in such federations and associations that would help them settle payments at least partially, if not fully.
The steps should be formally taken with many ethical and rights bodies in different countries and the leading apparel associations like BGMEA, BKMEA need to find a way of settling such pending payments.
An effort of similar sorts should be taken by the Ministry of Industries in Bangladesh and of major buying zones to ensure fair trade deals. A certain amount must be put forward as a settlement of these payments. This clause of confirmed payment will strengthen our market as well as ensure that our suppliers and the manufacturers can have a small compensation. This also shows intent from purchasing countries that they are willing to be a strong partner of Bangladeshi exporters.
In this COVID period, it is difficult to sustain for many brands and manufacturers, but by ensuring settlements, this process can be made easier.
