Lesson 23 of 39 · Part H · Level 2 · Explained
Beyond the LC: other ways to pay for imports
The LC is still the main road, but not the only one. Why the circular opens the door to open account, collections and supply chain finance, and the import routes it spells out: advance payments, documentary collection and contract imports without an LC.
In Lesson 22, Paying back-to-back LCs and the input stock, we saw that a back-to-back bill is paid on its due date even when the export money is late, and that the bank keeps a close eye on the stock in the bonded warehouse. That lesson closed Part G. Now the import room opens a new door.
Tahmid is back at the import desk, and this time he looks pleased with himself. His machinery supplier, the one who asked for an advance in Lesson 12, has delivered on time. Now it trusts him too. "They have offered me choices," he tells Rakib. "Pay part in advance, or let them send the documents through the banks, or even ship first and get paid later. My cousin says the LC is old-fashioned now. Is that true?"
Rakib isn't sure. He has opened many LCs but never chosen between payment methods. Sadia, his team lead, has an idea. "Shirin is teaching at the training session tomorrow. Bring Tahmid's question."
Shirin has 35 years in banking. She was once head of trade and foreign exchange at a large bank, and she is a certified documentary-credit specialist who trains bankers. She hears the question and laughs. "The LC is not old-fashioned. It just has company now. Let's meet the company, and see which doors the circular actually opens for imports."
This lesson starts Part H of the import circular: alternative trade finance mechanisms, paragraphs H-1 to H-3.
Documentary LC arrangements remain an important and …
In plain words
H-1 sets the scene before any rules arrive. It makes two points.
1. The LC stays. Documentary LC arrangements remain an important and widely accepted instrument for international trade. Nothing in H-1 retires the LC.
2. The LC now has company. Changes in global trade finance practices have led to more use of complementary ways to settle and finance trade. H-1 names them:
- Open Account Trade: the goods and documents travel first, and payment follows on an agreed later date;
- Documentary Collection: banks pass the documents along, but no bank promises to pay;
- Supply Chain Finance, including factoring and receivables financing;
- other structured trade finance solutions.
Why bother? H-1 says these mechanisms give additional options and may support greater flexibility for different business needs. Think of a Dhaka commuter: the bus is still the backbone, but a rickshaw, a CNG or a ride-share sometimes fits the trip better.
One small surprise: although this is the import circular, H-1 says the options are "for exporters". The paragraph is written that way, and it doesn't explain further. The rules for importers come in H-3.
At the desk
Tahmid tells Rakib his cousin says LCs are finished. Rakib reads H-1 aloud: the LC remains important and widely accepted, and the newer methods sit beside it as complementary options. "So you get more choices," he says, "not a new rule that throws out the old one."
Key words
- Open account
- The seller ships and sends documents directly to the buyer, who pays on an agreed later date.
- Documentary collection
- The seller's bank sends the shipping documents to the buyer's bank, which hands them over only when the buyer pays or accepts a bill. No bank promise to pay.
- 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.
- Receivables financing
- Getting finance against money your buyers owe you (your unpaid invoices), before they pay.
Read the rule as written (Para H-1)
Documentary 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.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part H, paragraph 1 (page 26). The original circular is the authority.
In order to facilitate the orderly development of a …
In plain words
H-1 said why. H-2 says how fast and for what purpose.
The purpose has two parts:
- to help the orderly development of a broader range of import trade finance instruments; and
- to bring domestic practice in line with evolving international standards.
The pace: alternative trade finance mechanisms may be adopted gradually, alongside conventional LC-based transactions.
Two words carry the weight. "Gradually" means step by step, not a big switch on one Monday morning. "Alongside" means the LC road stays open while the new roads are built. H-2 doesn't set a deadline, a timetable or a list of which bank must offer what.
As in H-1, the wording has a small twist: H-2 speaks of "conventional LC-based export transactions", while its aim is a wider range of import trade finance instruments. The paragraph is written that way and doesn't say more. Either way, the message is the same: new tools are welcome, they come in step by step, and the LC keeps working beside them.
At the desk
A new relationship officer tells Sadia, "From next week, let's stop opening LCs and push every importer onto open account." Sadia shakes her head gently. "H-2 talks about adopting these mechanisms gradually, alongside LC-based transactions. We add choices step by step. We don't close the LC counter."
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.
- Letter of credit (LC)
- A bank's promise to pay the seller, as long as the seller presents the right documents on time.
Read the rule as written (Para H-2)
In order to facilitate the orderly development of a broader range of import 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. 30, 13 August 2026, Part H, paragraph 2 (page 26). The original circular is the authority.
Permissible trade finance mechanisms
In plain words
H-3 is where the rules live. ADs may facilitate the import mechanisms below, always subject to three things: the bank's internal credit policies, due diligence, and the applicable foreign exchange regulations.
(a) Advance payments
You met these in Lesson 12, Paying in advance. H-3(a) doesn't restate that lesson's conditions, such as the contract requiring the advance or the Appendix-4 undertaking; they still apply, because H-3 as a whole works subject to the applicable foreign exchange regulations. H-3(a) sets out the limits like this:
- With a guarantee: an advance against import may be made regardless of amount, as long as the AD receives repayment guarantees from banks abroad.
- Without a guarantee: the AD may pay up to USD 20,000 or its equivalent, under the general permission in paragraph 12(b) of Part-B. That is the permission you met in Lesson 12, with its own instructions.
- From an ERQ account: the no-guarantee limit is USD 50,000, as per paragraph 2(4) of Part-O of FEPD-1 Circular No. 26 dated 30 July 2026.
- Above the limit, no guarantee: the request may be submitted to Bangladesh Bank, which considers it case by case.
- Urgent cases: the AD may send the application to Foreign Exchange Policy Department-1 by email during office hours. Such requests are ordinarily settled within 48 hours of receiving a complete application. An incomplete one doesn't start that clock.
(b) Documentary collection
Under paragraph 3 of Part-A, AD banks may handle export and import deals by documentary collection, including:
- Documents against Payment (DP): the buyer pays, then gets the documents;
- Documents against Acceptance (DA): the buyer accepts a bill to pay later, and gets the documents now.
The bank follows internationally accepted practices, including the latest version of the Uniform Rules for Collections (URC), and its own internal risk management policies.
Imports on a purchase/sales contract. ADs may also handle imports made under purchase/sales contracts without LCs, following the Import Policy Order in force and the foreign exchange rules in Part-C (Lesson 15, Importing on a contract, without an LC). One line matters a lot here: the AD does not take on any payment obligation unless separately contracted. With no LC, there is no bank promise unless the bank signs up for one separately.
At the desk
Tahmid's supplier offers two choices: a USD 30,000 advance with no guarantee, or shipment on DP collection. Shirin walks Rakib through it: an ordinary advance without a guarantee stops at USD 20,000, so this one would need Bangladesh Bank's case-by-case consideration. Under DP, the bank simply releases the documents once Tahmid pays, following the URC and its own risk policies. "Same machine, two very different paths," Shirin says. "Choose the path before you choose the price."
Key words
- Repayment guarantee
- A promise from the supplier's bank abroad to refund an advance if the supplier fails to deliver as per the contract.
- ERQ
- Exporters' Retention Quota: the share of export earnings an exporter may keep in foreign currency, in an ERQ account.
- 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 H-3)
ADs may facilitate the following import trade finance mechanisms, subject to internal credit policies, due diligence, and applicable foreign exchange regulations:
(a) Advance payments: Advance payment against import may be effected regardless of amount provided that ADs receive repayment guarantees from banks abroad. However, ADs may effect advance payments up to USD 20,000 or its equivalent (USD 50,000 in the case of payments from ERQ accounts, as per paragraph 2(4) of Part-O of FEPD-1 Circular No. 26 dated July 30, 2026) without repayment guarantee, under the general permission available pursuant to paragraph 12(b) of Part-B. Requests for advance payments exceeding the prescribed threshold without repayment guarantees may be submitted to Bangladesh Bank for consideration on a case-to-case basis. In urgent cases, ADs may submit applications to Foreign Exchange Policy Department-1 through email during office hours; such requests shall ordinarily be disposed of within 48 hours upon receiving complete application.
(b) Documentary collection: Pursuant to paragraph 3 of Part-A, AD banks may facilitate export and import transactions under Documentary Collection arrangements, including Documents against Payment (DP) and Documents against Acceptance (DA), in accordance with internationally accepted practices including compliance with the latest version of the Uniform Rules for Collections (URC), as well as their internal risk management policies.
In respect of imports conducted under purchase/sales contracts, AD banks may facilitate such transactions without LCs, subject to compliance with the provisions of Import Policy Order in force and foreign exchange regulations, as prescribed in Part-C. In such cases, ADs shall not assume any payment obligation unless separately contracted.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part H, paragraph 3 (page 26). The original circular is the authority.
Putting it together
So far: the documentary LC remains important and widely accepted, but open account, documentary collection, supply chain finance and other structured solutions now sit beside it, to be adopted gradually alongside LC-based transactions. For imports, H-3 lets ADs pay advances of any amount against repayment guarantees from banks abroad, or up to USD 20,000 without one (USD 50,000 from ERQ accounts), with larger no-guarantee requests going to Bangladesh Bank and urgent ones by email to FEPD-1. ADs may also handle DP and DA collections under the URC, and contract imports without LCs under Part-C, where the bank takes on no payment obligation unless separately contracted.
Next: Lesson 24, Supply chain finance, e-documents and safeguards. How the newer finance tools work for imports, and the checks that keep them safe.