The inflow of new work orders to Bangladesh's garment sector from international retailers and brands for June is 45 per cent lower than that a year ago as demand is yet to pick up in the western markets because of the coronavirus pandemic.
"New orders are being issued but they are at least 40 per cent to 45 per cent lower compared to last year's," said Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
So far, after intense negotiation with the buyers, a portion of the $3.15 billion worth work orders that were cancelled due to the Covid-19 pandemic have been reinstated.
"Finally, the local garment industry will have to face damages amounting to $5 billion," said Huq. "So, we will continue to try and push the buyers for payments."
At the factory level, suppliers are getting muted assurance from buyers on the payment even though retailers are reopening stores in the EU and the US, the two biggest destinations for Bangladeshi garments.
Suppliers are facing two main challenges from the buyers on payment: unusual deferred payment and discount.
The buyers are demanding even 180 to 220 days deferred payment although they primarily agreed to pay the money within 90 days. So, the reinstatement of the payment of the remaining work orders would be delayed.
"My buyers demanded 5 per cent to 10 per cent discount and a long-deferred payment. I am hopeful that I can settle the payment with my buyers," said Vidiya Amrit Khan, deputy managing director of Desh Garments.
An owner of a large garment factory in Ashulia was compelled to offer 15 per cent discount when his buyers threatened that they would take the goods next year if a big discount is not given.
"Finally, I agreed. I could not make any profit here," he said, seeking anonymity.
Ismail Hossain, managing director of Sharmin Group, also settled for deferred payment with his buyers. "My buyers agreed to take back nearly $16 million worth of clothing items. The payment would be delayed."
However, the quantity of new work orders went down to nearly 50 per cent because of the coronavirus, he said.
Khan argued that the local suppliers would default on their bank loans soon if buyers delay too much in clearing the payments because manufacturers need to pay the fabric suppliers.
In garment business, manufacturers purchase fabric from millers with back-to-back letters of credit and most of the payment to fabrics suppliers are made upon receiving the money from the international buyers.
This time, the fabrics suppliers are also getting delayed payments.
Back-to-back LCs are made up of two distinct LoCs, one issued by the buyer's bank to the intermediary and the other by the intermediary's bank to the seller.
With the original LC from the buyer's bank in place, the broker goes to his own bank and has a second LC issued, with the seller as the beneficiary. The seller is thus ensured of payment upon fulfilling the terms of the contract.
Rubana saw continued slowdown in exports till the end of 2020.
"The exports may plummet by 30 per cent to 40 per cent in the upcoming months since the retail market is yet to rebound."
"The impact of the Covid-19 on consumers behaviour is still unknown and our factories are still struggling with cash flow and credits to make a turnaround. We are still in the midst of many uncertainties and changes to foresee future trends."
Factories in Bangladesh have started reopening after Eid holidays with satisfactory presence of workers following proper guidelines to check the spread of the coronavirus, the BGMEA said.
"The BGMEA board is encouraged to see how factories are adopting new innovations at workplaces to better ensure the prevention of the spread of the virus," she said.