Bangladesh's ready-made garment sector is built on letters of credit, largely because factories themselves import fabric and trims on back-to-back LCs and settle in USD. That machinery works for established buyers with a bank line, but it is slow and expensive for a newer or smaller importer, who often ends up wiring an unconditional deposit instead. The risk on any prepayment is the same everywhere: money moves before the goods are verified. This guide covers the Bangladesh specifics, the role of AQL inspection and social audits in apparel, and how a milestone-gated payout structure lets you commit the whole order up front while each tranche releases only against agreed evidence.
Most guidance on paying an overseas supplier assumes a factory that will take a wire transfer and a deposit. In Bangladesh that assumption breaks early. A garment factory in Dhaka or Chattogram often will not quote against a plain telegraphic transfer at all, and when it does, the terms it offers a new buyer can leave you fully exposed the moment the money lands. To pay a supplier in Bangladesh well, you have to understand why the country runs on letters of credit in the first place.
Why Bangladesh runs on letters of credit
Ready-made garments, known locally as RMG, are roughly 80 per cent of the country's exports. That single fact shapes how the whole sector gets paid. Bangladesh grows very little of its own cotton and makes only some of its own fabric, so a factory taking an order for shirts usually has to import the fabric, and often the trims and accessories too, before it can cut anything.
It funds those imports with a back-to-back letter of credit. The factory receives an export LC from your bank, then uses that as collateral to open its own import LCs with its fabric mills in China, India, or elsewhere. One instrument backs the next. The factory carries very little of its own cash into the order, which is precisely why the model has lasted: it lets thinly capitalised factories run large orders.
Settlement is in US dollars almost throughout, and the LC discipline is enforced by Bangladesh Bank, the central bank, which regulates how export proceeds come home. For a buyer, a confirmed LC is genuinely strong protection, because the issuing and confirming banks check documents before anyone is paid.
Why the LC world is hard for a smaller buyer
The strength of a letter of credit comes with a cost that falls hardest on exactly the buyers who most need protection.
Opening an LC ties up a bank line or cash collateral, carries issuance and amendment fees that run into hundreds of dollars per shipment, and depends on your bank being willing to extend the facility at all. A first-time importer buying a few hundred thousand dollars of apparel a year frequently cannot get that line, or is quoted terms that make small orders uneconomic.
So the smaller or newer buyer drops out of the LC world and does the thing the LC was designed to avoid: a bank wire, with a deposit up front. That is where the real exposure sits. An unconditional prepayment to a factory you have not traded with before is irrecoverable from the moment it settles, and your only recourse is litigation in Bangladesh for a sum that rarely justifies it. The garment sector also carries its own failure modes, from fabric substitution to shipments that never leave, and a deposit gives you no leverage over any of them.
What inspection actually proves in apparel
Before talking about payment structure, it helps to be precise about the evidence apparel buyers already rely on, because it is stronger than in most categories.
Garment quality is checked against AQL sampling, the Acceptable Quality Limit standard. An inspector pulls a statistically determined sample from the finished lot and counts defects against agreed limits, typically something like AQL 2.5 for major defects on a mid-market order. A pre-shipment inspection in a Bangladeshi factory covers measurements, stitching, colour, labelling, and packing, and produces a report that says whether the lot passed.
Apparel also carries a second layer that most categories do not: social and ethical compliance. Buyers routinely require an audit against a standard such as SMETA, WRAP, or BSCI, covering factory safety, wages, and working hours. After the Rana Plaza collapse in 2013, structural and fire safety audits became close to mandatory for anyone selling into Europe or North America. These reports are real documents, produced on a schedule, and they are exactly the kind of evidence a payment can be tied to.
Paying against evidence instead of trust
The point of a letter of credit was never the paperwork for its own sake. It was that no payment moves until an independent party confirms a defined condition is met. You can keep that principle without the bank line by structuring the order into milestones and releasing each payment only against agreed evidence.
On a Bangladesh apparel order the natural milestones follow the documents the factory already produces:
- The signed purchase order and proforma invoice, releasing the portion that funds fabric and trims.
- A passed pre-shipment inspection report at the AQL you agreed, plus a current social audit, releasing the largest portion.
- The bill of lading once the goods are loaded, releasing the balance.
Each release is gated against the specific document, not against a calendar date or a promise. The factory still sees the full order value committed at the start, which for a thinly capitalised factory is a stronger assurance than a 30 per cent deposit, and it is often an easier sell than asking for a lower deposit, because it improves the factory's position rather than worsening it.
Where Tranchio fits on this corridor
This is the arrangement Tranchio is built to run. You commit the whole order value up front, and Tranchio structures it into tranches that release only against the evidence you and the factory agree on: the signed PO, the third-party inspection report, the bill of lading, each with your approval before it releases.
Tranchio is a control-and-record layer, not a bank. It gates each release against evidence and keeps a tamper-evident record of what was approved and when. It does not custody your money. Payment execution is handled by a licensed provider, which is live at launch. The Hong Kong to Bangladesh corridor page sets out how a buyer settling in USD through Hong Kong maps onto Bangladeshi factory terms, and the same milestone logic that works for a Chinese supplier applies here, with inspection and social audit as the conditions that carry the most weight.
For the factory, nothing about the fee structure changes what it receives. The seller pays nothing and gets every tranche in full; the fee sits on the buyer's side and is laid out in full on the pricing page. What the factory gains is visibility that the whole order is funded before it cuts a single metre of fabric, which is the one thing a deposit can never show.