Open account method boosts exports
Export under open account is helping export of Bangladeshi readymade garments in the pandemic hit international markets significantly.
This method of transaction against export is one of the four major methods of which three methods-cash in advance, documentary collection and documentary credit (LC) are common in Bangladesh but at the rising competitive situation the government has endorsed the open account system in which buyers agree to pay at a certain time against delivery of goods at the destination ports.
In the open account there is no letter of credit, bank guarantee or meeting of different charges by the buyers. In this way suppliers of exports bear all the costs.
Bangladesh was bound to allow such a way of transaction as other competitive countries export their goods by offering different facilities including open account. So to hold the buyers, Bangladeshi exporters demanded the introduction of such easy and less complex open account and the government after assessing the market reality have allowed the sales contract.
When contacted Md Shahidul Islam, a former vice president of BGMEA, said, "Till today no specific data is available with us but it is growing and helping us do business with our regular buyers."
He said, "Our reputed buyers are doing business under open account and till today there has been no problem between us."
He said due to pandemic hit economies, many countries are offering such open account transaction method as they want to hold the market under stiff competition.
The buyers also prefer this sales contract as they can maintain a cash flow to their business, he said.
The former leader of the BGMEA explained that under this method buyers seek a certain time to pay against goods and the suppliers or exporters ship both cargoes and documents together and in the destination port payments are made against delivery.
When contacted Md Faruq Hossain, Senior Vice President of Bank Asia, said under cash in advance method, the buyer faces risk for non-delivery of goods by suppliers, under documentary collection, buyer may incur additional bank charges and under documentary credit (LC), the buyer incurs additional bank charges for the guarantor bank.
Moreover, he said, the suppliers have to wait a long time to get their payments under documentary collection and documentary credit, which hampers to manage their cash flow significantly.
On the other hand the open account trade is mostly common in developed countries like Europe, North America and Far East. Bangladesh was behind in the open account trade transaction in export. Indonesia, Vietnam, Cambodia, the main competitors in RMG export, were enjoying the comparative advantage of open account payment method in export.