Bryan Nella, senior director of content & thought leadership-supply chain at Infor, discusses digitising trade documents and myths surrounding imports from Bangladesh.

Sourcing goods out of Bangladesh requires specific documentation to ensure that suppliers are paid before goods can ship internationally. The broad assumption continues to be that letters of credit (LC) are required. In fact, the US Department of Commerce offers the following advice on its website for companies exporting out of Bangladesh:

"Unless the importer is a multinational company operating in Bangladesh or a reliable, long-standing Bangladeshi customer, the Embassy recommends all the US exporters require their local buyers to present irrevocable, confirmed letters of credit to secure payment, preferably from a US bank.  This is true whether the importer is a private firm or part of the government and whether or not a multilateral institution or bilateral donor agency or government is financing the importer."

However, this ancient tool for managing transactions is not only inconvenient and costly (as much as 1.5 per cent of the transaction), it is unnecessary. Digitisation of transactions, including orders, invoices and settlements, enables companies and their suppliers to eliminate LCs and operate in a digital, transparent environment. Suppliers can know when they will be paid, and regulatory requirements can be met with speed and precision to ensure goods are shipped without delay. Here is how it works.

Digitisation of transactions removes paper, manual processes

While LCs are a highly manual tool, paper and manual tasks remain prevalent elsewhere across the procurement cycle. Spreadsheets, emails and phone calls are frequently used between buyer and supplier. Digitising documents, as well as the processes in which those are shared, is a catalyst for greater collaboration and efficiency. When purchase orders, invoices, amendments, settlements and other shipping documents are digitised and stored on a shared network platform, a single version of truth is created for all parties to see. Buyer, supplier and financial institution have direct visibility. And with the right set of rules and controls in place, purchase order data automatically populates the invoice and exceptions-management guidelines enable invoices to be auto-approved. The bank is notified immediately upon approval.

Cloud network connects buyer, supplier, financial institution

In the scenario above, picture that auto-approved invoice being visible to all parties including a bank. The bank sees who the buyer and seller are and knows that the invoice is already approved. The bank will step in and provide an early payment programme to get the supplier paid. This early payment programme, executed digitally through a cloud platform, meets regulatory requirements in Bangladesh requiring that the supplier receives payments before title transfer. Digitisation on a cloud network eliminates costly LCs that impact balance sheets, and it fosters greater collaboration and trust between buyers and sellers. 

Proven workflow by brands and suppliers in Bangladesh

For more than 10 years, major global brands and their suppliers have been relying on this digital model to move goods out of Bangladesh while reducing cost and risk of delays. For suppliers, the benefits are significant. They no longer need to deal with the cumbersome process of obtaining LCs from banks while benefiting from efficiently managing their cashflow and satisfying local regulations. This significantly lowers transaction costs and allows them to know exactly when they will get paid.

US imports from Bangladesh reached $6.1 billion in 2018, up 7.3 per cent ($417 million) from 2017, and up 62.8 per cent from 2008. As trade flows continue to blossom and expand, the underpinning processes that enable transactions must evolve and digitally transform to keep pace with the intensifying speed of business. Cross-party collaboration is essential and trading partners need to be digitally connected and engaged. Digitising procurement processes is a starting point for long-term relationship growth between Bangladesh suppliers and their customers. It can also address an immediate pain in the form of LCs that add costs and friction to transactions.