Payment Terms and Letters of Credit for Bangladesh Orders

Paying a supplier you have never met, in a country you may never have visited, for goods that do not exist yet, is where a lot of buyers freeze. It is a fair worry. Money leaves your account long before product arrives, and the wrong terms can leave you exposed.

The good news is that international trade has settled, well-understood ways to structure payment so both sides carry some risk and neither can walk off with everything. This guide explains the common ways to pay a Bangladesh manufacturer: telegraphic transfers with deposits, letters of credit, and escrow. It also shows where your risk sits at each stage of an order, and how to reduce it.

None of this replaces vetting your supplier first. The best payment structure in the world will not save you from a supplier who was never real. Pair this with our guide on how to vet a Bangladesh supplier.

The three ways buyers usually pay

Telegraphic transfer (TT / bank wire)

A TT is a direct bank-to-bank wire. It is the most common method for small and mid-sized orders because it is simple and cheap to arrange. The risk is that a wire is fast and hard to reverse, so you do not want to send the full amount up front.

The standard way to reduce that risk is to split the payment: a deposit to start production and the balance later, tied to a milestone. A very common structure is a deposit before production and the balance before shipment (often against a copy of the shipping documents or after your inspection passes). The exact split is negotiable and depends on order size, product, and how well the two sides know each other.

The key principle: never release the final balance until you have evidence the goods exist and meet spec, ideally a passed pre-shipment inspection.

Letter of credit (LC / documentary credit)

A letter of credit is a written undertaking by a bank, issued on behalf of the buyer, to pay the seller a set amount once the seller presents documents that comply exactly with the terms of the credit (according to the International Chamber of Commerce, which publishes the governing rules). It shifts the payment promise from you to a bank, which is why larger and first-time deals often use one.

The parties are standard: the applicant (you, the buyer), the issuing bank (your bank), and the beneficiary (the supplier). The supplier gets paid only against compliant documents (typically the bill of lading, invoice, packing list, and any inspection or origin certificates the LC requires). If the documents do not match, the bank can refuse to pay until discrepancies are resolved.

LCs are governed globally by the ICC's Uniform Customs and Practice for Documentary Credits, known as UCP 600, which came into force on 1 July 2007 (ICC; Trade Finance Global). Under UCP 600 the default credit is irrevocable, meaning the issuing bank's promise to pay cannot simply be withdrawn once the credit is issued.

The tradeoffs: LCs give strong protection to both sides but cost more (bank fees on both ends) and demand precise paperwork. A tiny mismatch between the LC wording and the shipping documents can delay payment. For small orders, the fees and hassle often outweigh the benefit.

Escrow

With escrow, a neutral third party holds your money and releases it to the supplier only when agreed conditions are met (for example, goods shipped and inspection passed). Some B2B marketplaces offer built-in escrow or trade-assurance style protection. Escrow can be a sensible middle ground for smaller orders where a full LC is overkill, but availability and cost vary, and you should confirm exactly what triggers release before you rely on it.

Which method fits which order

There is no single right answer, but some rules of thumb hold up:

A supplier insisting on full payment before production, with no milestones and no inspection, is a red flag. So is one who will only accept payment to a personal account rather than the company account. Both appear in real first-order horror stories and are covered in common first-time importer mistakes.

Where your risk sits at each stage

Risk is not constant across an order. It moves. Mapping it helps you decide what to pay and when.

• Before production. You have paid a deposit; nothing physical exists yet. Your protection here is supplier vetting and a signed order with a clear spec, not the payment method. Keep the deposit reasonable.
• During production. Materials are bought and cutting begins. An in-line check or a top-of-production sample tells you the line is on track before you commit the balance.
• Before shipment. This is the decision point. A pre-shipment inspection against your approved standard is what should unlock the final payment. Do not release the balance on a promise; release it on evidence.
• In transit and at your port. Once goods ship, ownership and risk move according to your agreed Incoterm, which is a separate question from payment. Understand who is responsible for the goods at sea and at customs in our Incoterms for Bangladesh imports guide.

Tie your payments to these stages and you keep leverage exactly when you need it.

Practical ways to protect yourself

• Never pay 100% up front to a supplier you do not know. Use a deposit-and-balance split.
• Tie the final payment to a passed inspection, not just to shipment.
• Pay to the company's registered bank account, matching the name on your invoice and paperwork. Refuse personal accounts.
• Get everything in writing: price, currency, payment split, milestones, Incoterm, and what documents you need.
• Watch for payment-detail changes. A last-minute email "our bank account has changed, please wire here instead" is a classic fraud pattern. Verify any change by a known phone number, never by replying to the email.
• Match the method to the order size. Do not pay LC fees on a sample order; do not wire five figures to a stranger with no protection.

Frequently asked questions

Is it safe to pay a Bangladesh manufacturer by bank transfer?

Yes, if you structure it well. Use a deposit plus a balance tied to a passed pre-shipment inspection, pay only to the registered company account, and vet the supplier first. A single full prepayment to an unverified supplier is where people get hurt, not the wire itself.

When is a letter of credit worth it?

For larger orders or new relationships where both sides want bank-backed protection. LCs cost more and demand exact paperwork, so for small first orders a TT deposit with inspection-linked balance, or escrow, is usually more practical.

What deposit is normal for a garment order?

There is no single fixed figure; it is negotiated by order size, product, and relationship. The principle matters more than the number: keep a meaningful part of the payment tied to a milestone after production, so you retain leverage until you can verify the goods.

What is UCP 600?

UCP 600 is the set of rules published by the International Chamber of Commerce that governs how letters of credit work worldwide. It came into force on 1 July 2007 and, by default, treats documentary credits as irrevocable (ICC; Trade Finance Global). It is why LC terms and documents must match precisely.

How we can help

We help you structure payment so you are never overexposed: advising on a sensible deposit-and-balance split, arranging inspections that unlock your final payment, and coordinating the documents an LC needs when one makes sense. Because we sit in Dhaka and deal with the manufacturer directly, we can verify accounts, check paperwork, and flag anything that looks off before your money moves. Tell us what you need and we will recommend payment terms that fit your order size and risk. If you are just getting started, read how to source clothing from Bangladesh first.