Lesson 10 of 39 · Part B · Level 2 · Explained
Firm orders and the right payment route
Before a bank promises to pay a seller abroad, it checks that the deal is real and the seller is sound. Then: where may the money go, and in what currency?
In Lesson 9, Land ports and LC timing, Rakib learned the six extra steps for goods that come in by truck, and that every LC is opened within any period the IPO in force sets. Today's customer is a different story.
Tahmid wants to import machinery from a supplier he found only last month. "The price is wonderful," he says, "almost too good." Sadia smiles. "That is exactly the kind of sentence that makes a banker sit up straight."
She explains it to Rakib like buying a second-hand motorbike from a stranger on Facebook. Before you hand over the money, you want two things: proof that the seller has really agreed to sell, and some idea of who the seller is. An LC is the bank's promise to pay a stranger abroad, so the bank asks the same two questions (B-6). Then it decides where, and in what currency, the money may go (B-7).
LCs to be opened only against firm contracts
In plain words
B-6 asks two questions: is the deal real, and is the seller sound?
1. A firm order first. Before opening an LC, the AD should see documentary evidence that a firm order has been placed and accepted. Each LC must also give a full description of the goods along with the unit price. "Machinery parts, USD 25,000" is not enough.
2. A credit report on the seller. The AD gets a confidential report on the exporter from its branches or correspondents abroad. Or, at its discretion, it checks the exporter's standing in standard reference books from international credit rating agencies acceptable to it. This is required whenever the LC or contract amount exceeds:
- USD 30,000, against a proforma invoice issued directly by the foreign supplier; or
- USD 40,000, against an indent issued by the supplier's local agent.
For indents, the AD must also be satisfied, from information given by importers, that the agent is regular in bringing its commission income home. For its own customers, the AD checks its own records.
3. Rules for the reports themselves.
- Each AD's Head Office or Principal Office keeps a central database of reports for its branches to use.
- The AD obtains reports itself. A report submitted by the importer is not accepted.
- Below the limits, the AD may still check the seller, in its own interest.
- A report stays valid for up to twelve months from its date of issue, if no adverse report comes up. Within that time it may be used for other importers buying from the same supplier.
- During its validity, the AD must use the same report for all its importers buying from that supplier, and may send the collection cost abroad only once. The AD sets reasonable service charges for each importer, depending on use.
- The AD accepts a report an importer has arranged from another AD, but receives it directly from that AD.
At the desk
Tahmid's LC for machinery is USD 45,000, against a proforma invoice sent directly by his new supplier. Rakib checks the central database and finds no report on this supplier, so he asks the bank's correspondent abroad for one. A week later, another customer applies to import from the same supplier. Rakib uses the same report, still within its twelve months, and the collection cost is not paid a second time.
Key words
- Firm order
- An order the buyer has placed and the seller has accepted, so the deal is settled.
- Credit report
- A confidential report on a foreign supplier's standing, which the bank obtains itself before trusting the supplier with an LC.
- Proforma invoice (PI)
- The seller's advance quote: what will be sold, at what price and on what terms. Not a bill for payment.
- Indent
- A sales offer issued by the foreign seller's registered local agent (the indentor), showing the goods, price and terms.
Read the rule as written (Para B-6)
(1) ADs should, before opening an LC, see documentary evidence that a firm order for the goods to be imported has been placed and accepted. While opening an LC, ADs should ensure that full description of the goods to be imported are given in each credit along with the unit price of the merchandise.
(2) Credit Reports of the foreign suppliers:
(a) ADs should also obtain confidential report on the exporters from their branches or correspondents abroad or in their discretion, satisfy themselves as to the standing of the exporter by consulting standard books of reference issued by international credit rating agencies acceptable to ADs in all cases where the amount of LC/contract exceeds USD 30,000 (Thirty thousand) against proforma invoices issued directly by foreign suppliers and USD 40,000 (Forty thousand) against indents issued by local agents of the foreign suppliers. In respect of indents from local agents, ADs need to satisfy themselves that the respective agents are regular in repatriation of commission income through the information from importers. In case of own customers, ADs shall check their own records for satisfaction.
(b) Head Offices/ Principal Offices of all ADs shall maintain a central database of collected reports and allow their ADs to use the relevant credit reports of the foreign suppliers stored in the said database. Such reports should be obtained by ADs themselves and the reports if submitted by the importers should not be accepted. ADs may also, at their discretion and in their own interest, verify the standing of the beneficiaries even in cases where the value of the credit is lower than the limits mentioned above. Credit report may remain valid for a period of maximum twelve months from the date of issuance if no adverse report comes to the notice of ADs. Moreover, credit report of the same supplier collected for one importer may be used for other importers within the same validity.
(c) ADs shall obtain the credit report for a supplier during the period of its validity. In no way, ADs are allowed to remit more than one time as collection cost for the credit report. During the validity, ADs shall use the report for all their importers importing from the same supplier. Depending on its usability, ADs shall set reasonable service charges attributable to respective importers. In addition, ADs shall accept credit report arranged by importers from other ADs. In this case, ADs need to receive the reports directly from other ADs concerned.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part B, paragraph 6 (page 12). The original circular is the authority.
In plain words
Now the money. B-7 sets out where an LC may send it and how.
Where: the LC may provide for payment to the country of origin of the goods, or to any other country, except countries from which imports are prohibited.
How: the LC may provide for payment or reimbursement:
- in any freely convertible foreign currency, which the circular says includes Chinese Yuan (CNY);
- in the currency of the beneficiary's country, or of the country of origin or shipment of the goods; or
- by credit to the non-resident Taka account of the concerned bank abroad.
Special deals: imports under barter agreements or foreign loans or grants are paid only in the manner specified for that barter, loan or grant.
Think of a big shop that takes cash, card or a mobile wallet. That's the general menu. But a gift voucher can be spent only on the terms printed on it. Barter, loan and grant imports are the gift vouchers.
At the desk
Tahmid's machinery is made in Italy, but his supplier is based in Germany and asks to be paid in euro. Rakib isn't sure, so Sadia asks Dr Omar, who is visiting the branch for a talk. Dr Omar, an economist and former Chairman of the Bangladesh Investment Board, nods. "Payment may go to the country of origin or another country, as long as imports from it aren't prohibited. And it may be in the beneficiary's own currency. The route is fine."
Key words
- Freely convertible currency
- A currency that can be exchanged freely, such as USD, EUR, GBP or JPY.
- Non-resident Taka account
- A Taka account that belongs to a bank abroad. An LC may pay by crediting it.
- Barter
- Paying for goods with other goods instead of money.
- Grant
- Money or goods given by a foreign government or agency that do not have to be paid back.
Read the rule as written (Para B-7)
LC may be established providing for payment to the country of origin of goods or any other country except those countries imports from which are prohibited. The LC may provide for payment or reimbursement in any freely convertible foreign currency including Chinese Yuan (CNY), in the currency of the country of the beneficiary or of the country of origin/shipment of goods, or by way of credit to the non-resident Taka account of the concerned bank abroad. Payments for imports under barter agreements or under foreign loans/grants can be made only in the manner specified for the concerned barter/loan/grant.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part B, paragraph 7 (page 13). The original circular is the authority.
Putting it together
So far: before opening an LC, the bank sees proof of a firm order and puts a full description and unit price in the LC. It gets its own credit report on the seller when the amount exceeds USD 30,000 (direct proforma invoice) or USD 40,000 (indent). Reports are shared through a central database, valid for up to twelve months, with the collection cost sent abroad only once. The LC may pay to the country of origin or any non-prohibited country, in a freely convertible currency (CNY included), the beneficiary's or origin/shipment country's currency, or a non-resident Taka account. Barter, loan and grant imports follow their own terms.
Next: Lesson 11, When can the bank pay? When the bank may actually send the money, and what happens with dishonoured bills, discrepant documents and goods imported under penalty.