Letter of Credit for Bangladesh Imports: Step-by-Step Guide

Letter of Credit for Bangladesh Imports: Step-by-Step Guide

A Letter of Credit (L/C) is the most secure payment method for international trade, protecting both buyer and supplier. For sourcing from Bangladesh, L/C is the standard payment method for orders above $10,000. This guide explains the complete L/C process for importing from Bangladesh.

What is a Letter of Credit?

An L/C is a guarantee from the buyer's bank to pay the supplier upon presentation of compliant shipping documents. The buyer's bank commits to pay the supplier's bank when the supplier presents documents proving the goods have been shipped as specified. This protects the buyer (goods must be shipped before payment) and the supplier (payment is guaranteed by a bank).

Step 1: Negotiate Terms

Before opening an L/C, agree with the supplier on: product specifications, quantity, unit price, total value, currency (usually USD), incoterms (FOB Chittagong is most common), latest shipment date, port of loading (Chittagong), port of destination, and required documents (commercial invoice, packing list, B/L, CO, inspection certificate if needed).

Step 2: Open the L/C

Submit an L/C application to your bank with: supplier's name and address, beneficiary bank (any BD bank authorized for FX), amount, expiry date, shipment period, document requirements, and special conditions. Your bank issues the L/C via SWIFT to the supplier's bank in Bangladesh. Cost: 0.1-0.25% of L/C value, minimum $100-300.

Step 3: Supplier Ships Goods

The supplier manufactures the goods, ships them from Chittagong port, and presents the required documents to their bank in Bangladesh. Documents must match the L/C terms exactly — any discrepancy can cause payment delays. Typical documents: signed commercial invoice, packing list, clean on board B/L, Certificate of Origin (Form A for EU EBA), and inspection certificate (if required).

Step 4: Document Verification and Payment

The supplier's bank sends documents to your bank. Your bank verifies documents against L/C terms. If compliant, payment is released to the supplier's bank. If discrepancies exist, your bank will notify you to accept or reject. Payment is typically made within 5-7 banking days of document presentation.

Types of L/C for Bangladesh Trade

Irrevocable L/C (most common — cannot be cancelled without consent of all parties), Confirmed L/C (a second bank adds its guarantee — recommended for large orders), Sight L/C (payment on document presentation), and Usance L/C (deferred payment, typically 60-120 days). For first-time suppliers, use Irrevocable Sight L/C. For established relationships, Usance L/C provides better cash flow.

Common L/C Issues with Bangladesh

Common issues include: document discrepancies (most common — 70% of L/Cs have initial discrepancies), delayed presentation (supplier must present documents within 21 days of B/L date), and B/L issues (incorrect consignee, missing clauses). Work with an experienced freight forwarder and bank trade finance team to avoid these issues.