LCs are still welcome, but exporters now have more ways to get paid and financed: advance payment, open account, documentary collection and supply chain finance such as factoring. What a bank may offer, on what conditions, and why a new SCF product needs Bangladesh Bank's acknowledgement before it starts.
In Lesson 20, Security, service providers and the start, Evelyn learned how her bank must keep digital trade documents safe, and why Part E still covers everything outside the pilot. That finished Part F. Her worry about hackers is now a little smaller.
A new worry has taken its place. Her long-time buyer in Hamburg writes: "We have worked together for years. Do we still need an LC every time? Our other suppliers ship on open account, and some get paid early through a finance company." Evelyn reads it twice over her morning cha. No LC sounds cheaper. It also sounds a little like walking on a rope without a net.
She calls Habib at her bank's AD branch in Dhaka. "Good timing," he says. "Our guest at this week's session is Mithu, a chartered accountant and former CFO of a large export group. Mithu has spent years watching exporters' cash come in late, early and sometimes not at all."
At the session, Mithu listens to Evelyn and smiles. "An LC is like a train ticket with a reserved seat. The other methods are buses, rickshaws and ride-shares. Each one can get you there. You just need to know the price, the risk and the rules for each." This lesson covers the first three paragraphs of Part G: why new methods are coming (G-1), which ones a bank may offer (G-2), and supply chain finance (G-3).
G-1 is the "why" paragraph of Part G. It sets the scene before the rules start.
LCs still matter. The circular says documentary LCs remain an important and widely accepted instrument for international trade. Nobody is closing the LC door.
The world has more tools now. Global trade finance has moved towards complementary ways to settle and finance trade. G-1 names them: open account trade, documentary collection, and supply chain finance, including factoring, receivables financing and other structured trade finance solutions.
Why they help: they give exporters more options and may support greater flexibility for different business needs. A buyer who has paid on time for ten years may not want the cost and paperwork of an LC every time.
How they arrive: to help a wider range of export finance tools grow in an orderly way, and to bring local practice in line with evolving international standards, these alternative trade finance mechanisms may be adopted gradually, alongside normal LC-based exports.
Notice the two key words: gradually and alongside. The new tools are added next to the LC, step by step. They are not a replacement.
At the desk
Evelyn asks Habib whether her bank will stop opening LCs for her buyers now that Part G has arrived. Habib shakes his head and shows her G-1: the new mechanisms come gradually and alongside LC-based exports. Mithu adds, "Think of it as a bigger menu, not a new restaurant. The LC is still on it."
Key words
Alternative trade finance mechanisms
Ways to settle and finance trade other than the documentary LC, such as open account, documentary collection and supply chain finance.
Receivables financing
Getting finance against money your buyers owe you (your unpaid invoices), before they pay.
Structured trade finance
Finance arranged in a tailor-made way around a particular trade deal or flow of goods and payments.
Read the rule as written (Para G-1)
Documentary Letter of Credit (LC) arrangements remain an important and widely accepted instrument for facilitating international trade. At the same time, developments in global trade finance practices have led to the increasing use of complementary trade settlement and financing mechanisms, such as Open Account Trade, Documentary Collection, Supply Chain Finance including factoring, receivables financing, and other structured trade finance solutions. These mechanisms provide additional options for exporters and may support greater flexibility in addressing diverse commercial requirements. In order to facilitate the orderly development of a broader range of export trade finance instruments and to align domestic practices with evolving international standards, alternative trade finance mechanisms may be adopted gradually alongside conventional LC-based export transactions.
Source: Bangladesh Bank, FEPD-1 Circular No. 26, 30 July 2026, Part G, paragraph 1 (page 30). The original circular is the authority.
G-2 lists three mechanisms an AD may facilitate. First, the umbrella condition that covers all three: the AD acts subject to its internal credit policies, due diligence, and the applicable foreign exchange regulations. So "may" means the bank can say yes, but only after its own checks.
(a) Advance payment
Receiving an advance against an export is permissible, in terms of paragraph 22, Part A of the circular. G-2 only points there; the details sit in that paragraph.
(b) Open account trade
ADs may allow exporters to ship on open account credit terms. Five conditions come with it:
the statutory export realisation period (G-2 doesn't repeat the number);
a satisfactory track record;
buyer reliability;
defined credit terms; and
compliance with Part D of the circular, the open account part this room covered earlier.
(c) Documentary collection (DP/DA)
AD banks may handle exports under documentary collection, either DP (documents against payment) or DA (documents against acceptance). This must follow the URC and the bank's internal risk management policies, and the bank must ensure:
proper documentation;
a buyer risk assessment; and
monitoring of realisation, meaning someone keeps watching until the money actually arrives.
At the desk
Evelyn's Hamburg buyer has paid on time for eight years and now asks for open account terms. Habib checks the points in G-2(b): her track record, the buyer's reliability, clear credit terms written into the contract, the statutory realisation period and the Part D rules. Mithu reminds Evelyn to plan her cash flow too: "On open account, your money arrives later than under the LC. Make sure you can pay wages while you wait." Habib's credit team then reviews the request under the bank's own policies.
Key words
Advance payment
The buyer pays before the goods are shipped.
Open account
The seller ships and sends documents directly to the buyer, who pays on an agreed later date.
D/P (Documents against Payment)
The buyer gets the shipping documents only after paying. Also called CAD.
DA
Documents against Acceptance: the buyer accepts a bill to pay later and gets the documents now.
Read the rule as written (Para G-2)
ADs may facilitate the following export trade finance mechanisms, subject to internal credit policies, due diligence, and applicable foreign exchange regulations:
(a) Advance payments: In terms of the provisions contained in paragraph 22, Part-A of this circular, receipt of advance payment against export transactions is permissible.
(b) Open account trade: ADs may allow exporters to ship goods on open account credit terms, subject to statutory export realization period, satisfactory track record, buyer reliability, defined credit terms, and compliance with Part-D of this circular.
(c) Documentary collection: AD banks may facilitate export transactions under Documentary Collection (DP/DA) in accordance with URC and internal risk management policies, ensuring proper documentation, buyer risk assessment, and monitoring of realization.
Source: Bangladesh Bank, FEPD-1 Circular No. 26, 30 July 2026, Part G, paragraph 2 (page 30). The original circular is the authority.
G-3 is about supply chain finance (SCF). It has an encouragement, an example, and a firm procedure.
The encouragement: ADs are encouraged to develop export-oriented SCF solutions, including factoring and receivables financing.
The example:reverse factoring may let exporters receive early payment against buyer-approved invoices. In plain words, the buyer confirms "yes, we owe this invoice", and a financier pays the exporter early on the strength of that confirmation. It is like a shopkeeper getting cash today because a big, trusted customer has signed the bill.
The procedure: an AD that intends to introduce an SCF structure must:
inform the Foreign Exchange Policy Department-1 of Bangladesh Bank before the launch; and
start it only after regulatory acknowledgement.
What the submission must include:
product structure;
risk framework;
credit assessment methodology;
exposure limits;
approval hierarchy;
monitoring arrangements; and
other relevant, pertinent issues.
The circular doesn't say how long the acknowledgement takes, or set a format for the submission beyond this list. One thing is clear: no acknowledgement, no launch.
At the desk
Habib's head office has designed a reverse factoring product for garment exporters like Evelyn, and the marketing team wants to announce it next week. Habib points out G-3: the bank must first inform FEPD-1 of Bangladesh Bank, with the product structure, risk framework, credit assessment method, exposure limits, approval hierarchy and monitoring arrangements, and launch only after regulatory acknowledgement. Mithu laughs. "Better a week late than a launch without the paperwork."
Key words
Supply chain finance (SCF)
Finance tools, such as factoring and receivables financing, that help the sellers in a buyer's supply chain get paid earlier.
Factoring
Selling your unpaid invoices to a bank or finance company (a "factor") to get cash now.
Reverse factoring
A form of supply chain finance where the buyer approves the seller's invoices, and the seller can then get early payment against them.
Regulatory acknowledgement
Bangladesh Bank's acknowledgement of a bank's submission about a new SCF product. Under G-3, the product may start only after it. The circular doesn't describe its form.
Read the rule as written (Para G-3)
ADs are encouraged to develop export-oriented SCF solutions including factoring and receivables financing. Reverse factoring may enable exporters to receive early payment against buyer-approved invoices. ADs intending to introduce SCF structures shall inform the Foreign Exchange Policy Department-1 of Bangladesh Bank prior to launch and ensure implementation only after regulatory acknowledgement. The submission shall include product structure, risk framework, credit assessment methodology, exposure limits, approval hierarchy, monitoring arrangements, and relevant other pertinent issues.
Source: Bangladesh Bank, FEPD-1 Circular No. 26, 30 July 2026, Part G, paragraph 3 (page 30). The original circular is the authority.
So far: LCs remain an important and widely accepted tool, but alternative trade finance mechanisms may now be adopted gradually alongside them. Under G-2, an AD may facilitate advance payments (under paragraph 22, Part A), open account trade (with the realisation period, a good track record, a reliable buyer, defined credit terms and Part D) and documentary collection on DP or DA terms under the URC, always subject to its own credit policies, due diligence and the foreign exchange rules. ADs are encouraged to build supply chain finance such as factoring and reverse factoring, but must inform FEPD-1 of Bangladesh Bank before launch and start only after regulatory acknowledgement.
Next: Lesson 22, Digital trade finance and its safeguards. Electronic trade documents, the safety checks banks must keep for non-LC finance, and why the LC stays.
Check yourself
30 questions, in 3 sets of up to 10. Nobody sees your answers but you.
Set 1 of 3
G-1 says LC arrangements remain an important and widely accepted instrument for facilitating international trade. (G-1)
G-1 names open account trade, documentary collection, supply chain finance (including factoring and receivables financing) and other structured solutions; barter is not mentioned. (G-1)
G-1 says alternative mechanisms may be adopted gradually alongside conventional LC-based export transactions. (G-1)
G-1 aims to facilitate the orderly development of a broader range of export trade finance instruments and to align domestic practices with evolving international standards. (G-1)
False. G-1 says they may be adopted gradually alongside conventional LC-based export transactions. (G-1)
True. G-1 says these mechanisms provide additional options and may support greater flexibility for diverse commercial requirements. (G-1)
G-1 keeps LCs as an important, widely accepted instrument and adds the alternatives alongside them. (G-1)
Finance against money buyers owe is receivables financing, one of the supply chain finance tools G-1 names. (G-1)
G-2 makes all three mechanisms subject to internal credit policies, due diligence and applicable foreign exchange regulations. (G-2)
G-2(a) says advance payment is permissible in terms of paragraph 22, Part A of the circular. (G-2)
Set 2 of 3
G-2(b) lists the statutory realisation period, satisfactory track record, buyer reliability, defined credit terms and Part D; no minimum turnover is mentioned. (G-2)
G-2(c) says documentary collection follows the URC and internal risk management policies. (G-2)
G-2(c) requires proper documentation, buyer risk assessment and monitoring of realisation. (G-2)
DA means documents against acceptance: the buyer accepts a bill and pays later. G-2(c) allows DP and DA collections. (G-2)
True. G-2(a) says receipt of advance payment against export transactions is permissible, in terms of paragraph 22, Part A. (G-2)
False. G-2(b) makes open account trade subject to compliance with Part D of the circular. (G-2)
G-2(b) requires a satisfactory track record and buyer reliability, which an exporter with no history and an unknown buyer cannot easily show. (G-2)
G-2(b) requires defined credit terms for open account trade. (G-2)
G-2(c) requires monitoring of realisation in documentary collections. (G-2)
G-2(a) permits advance payments in terms of paragraph 22, Part A. (G-2)
Set 3 of 3
G-2 says ADs may facilitate these mechanisms subject to internal credit policies, due diligence and FX regulations. (G-2)
G-3 encourages ADs to develop export-oriented SCF solutions including factoring and receivables financing. (G-3)
G-3 says reverse factoring may enable exporters to receive early payment against buyer-approved invoices. (G-3)
G-3 says ADs shall inform the Foreign Exchange Policy Department-1 of Bangladesh Bank prior to launch. (G-3)
G-3 says ADs shall ensure implementation only after regulatory acknowledgement. (G-3)
G-3 lists product structure, risk framework, credit assessment methodology, exposure limits, approval hierarchy, monitoring arrangements and other pertinent issues. (G-3)
False. G-3 requires informing FEPD-1 prior to launch and implementing only after regulatory acknowledgement. (G-3)
G-3 requires prior information to FEPD-1 and implementation only after regulatory acknowledgement. (G-3)
G-3 requires the submission to include credit assessment methodology and approval hierarchy, among other items. (G-3)
G-3 describes reverse factoring as early payment to exporters against buyer-approved invoices. (G-3)
Found this useful? Pass it on.
One tap before you go: which describes you best?
Anonymous. It only adds one to a count, so we know who the lessons are helping. We never learn who you are.