LC vs TT vs open account: choosing the right payment method for Bangladesh imports
1124 words · 7/31/2026
How you pay an Indian supplier changes your cost, your cash conversion cycle and your leverage when a consignment arrives wrong. In Bangladesh it also changes what is legally available to you, because Bangladesh Bank regulates cross-border payment far more tightly than most corridors.
This is the practical comparison: what each instrument costs, when Bangladesh Bank permits it, and how to choose.
The regulatory constraint that shapes everything
Bangladesh operates a managed foreign exchange regime. Every import payment moves through an Authorised Dealer (AD) bank against documentary evidence, and the instruments are not interchangeable at your discretion.
Two rules dominate practical decisions:
- Advance payments are capped and conditioned. Bangladesh Bank restricts how much may be remitted in advance of shipment without additional cover. Above the threshold, ADs typically require a bank guarantee from the supplier's bank. This single rule is why open account terms — normal in most of the world — are largely unavailable to Bangladeshi importers.
- Every payment must reconcile to a Bill of Entry. ADs are obliged to match remittances against customs clearance evidence. Unreconciled remittances create compliance exposure for the bank, which is why they police documentation hard.
Plan around this. Ignoring it produces the most common corridor failure: goods on the water with no compliant route to pay for them.
Letter of Credit
An LC is your AD bank undertaking to pay the supplier against compliant documents. The bank stands between the parties, and the documents — not the goods — trigger payment.
Costs: LC opening commission (roughly 0.25–0.50% per quarter of validity), advising and negotiation charges on the Indian side, amendment fees, plus margin held against the credit. All-in, typically 1–2.5% of value for a straightforward sight credit.
Cash impact: ADs usually require a cash margin — often 10–50% of LC value, higher for non-priority consumer goods and for new importers. That margin is dead cash from LC opening until retirement.
Sight versus usance
- Sight LC — payment on presentation of compliant documents. Supplier is comfortable, your working capital is tied up earliest.
- Usance LC (30/60/90/120 days) — payment deferred after acceptance. This is the single most effective working-capital lever on the corridor: 90-day usance on a 60-day sell-through cycle means the goods fund themselves. The supplier prices the deferral in, or discounts the accepted bill with their own bank.
Compare the usance premium against your actual cost of working capital. If your alternative is a 14% local overdraft, paying a 3% annualised deferral premium is straightforwardly correct.
Back-to-back LC
If you are importing inputs against a confirmed export order, a back-to-back LC lets you open an import credit secured by your export LC. For RMG and other bonded-warehouse operations this is the standard structure and it is materially cheaper than funding inputs from your own balance sheet. It requires the export LC to be in hand first.
Where LCs actually protect you
An LC is document-compliance protection, not quality protection. The bank pays against paper. If you want the instrument to protect the goods, the conditions have to be written into the credit:
- Pre-shipment inspection certificate from a named agency
- BSTI / BTRC / DGDA approval evidence, where the category requires it
- Minimum remaining shelf life at shipment, for food and cosmetics
- Full document set: invoice, packing list, bill of lading or lorry receipt, certificate of origin, insurance
Then hold the line on discrepancies. Waiving them casually trains suppliers that conditions are decorative.
Telegraphic Transfer
A TT is a direct bank wire — fast, cheap, and structurally unprotected.
Costs: typically USD 25–75 in wire and correspondent charges, plus FX spread. Effectively free against LC economics.
Availability: constrained by the advance payment rules above. TT works cleanly for payment after shipment against documents, and for advances within the permitted threshold.
When TT is right: repeat orders with a supplier who has performed, small values where LC fees dominate economics, urgent replenishment, and split structures — a permitted advance to release production, balance on TT against a scanned document set.
When TT is wrong: first order with a new supplier, and any category with real regulatory rejection risk. A TT paid before a BSTI refusal is money you are negotiating to get back.
Open account
The supplier ships and invoices, you pay on terms. Common globally, rarely practical in Bangladesh — Bangladesh Bank's reconciliation and advance payment framework does not accommodate it for general merchandise imports. Treat it as unavailable unless your AD bank confirms a specific permitted structure for your case.
FX exposure — the cost nobody quotes
BDT has depreciated persistently against USD. On a 90-day usance credit you are short USD for 90 days, and a 3% move erases a typical trading margin.
Three practical responses:
- Recognise the exposure explicitly. Book landed cost at a conservative forward rate, not spot on order date.
- Ask your AD about forward cover. Availability varies with the bank and the FX environment, but ask before assuming no.
- Shorten tenor when BDT is under pressure. The working-capital benefit of long usance can be smaller than the currency risk it creates.
Track this per shipment. Our FX exposure view flags open foreign-currency liabilities by tenor so the position is visible before it becomes a loss.
Decision matrix
| Situation | Instrument |
|---|---|
| First order, new supplier | Sight LC with inspection conditions |
| Regulated category (food, cosmetics, pharma, telecom) | LC conditional on approval evidence |
| Large order, want working-capital relief | Usance LC, 90–120 days |
| Inputs against a confirmed export order | Back-to-back LC |
| Repeat order, proven supplier, moderate value | TT against documents |
| Small or urgent replenishment | TT within permitted advance limits |
| General merchandise, any size | Open account is not realistically available |
Sequence to follow
- Confirm with your AD bank what is permitted for your category and value before negotiating terms
- Model total cost of the instrument — fees, margin, deferral premium, FX — not just the headline rate
- Write protection into LC conditions rather than trusting the relationship
- Reconcile every remittance to its Bill of Entry as clearance completes
- Review instrument choice per supplier each quarter as track record accumulates
Pair this with the landed cost walkthrough so the financing cost sits in the same model as duty and freight.
Verify before committing
Bangladesh Bank's foreign exchange circulars change, and advance payment thresholds, margin requirements and forward cover availability all move with them. Confirm current rules with your Authorised Dealer bank before structuring a transaction. This guide is general information, not regulatory or financial advice.