Import & LC
Garment (RMG) accounting basics: BTB LC, cash incentive and landed cost
RMG accounting in Bangladesh explained for owners and accountants: back-to-back LC, export proceeds, cash incentive and how to cost imported fabric properly.
A garment factory sits in the middle of a chain of foreign money: the buyer pays you in dollars against an export contract, you pay for imported fabric and accessories under a back-to-back LC, and the bank handles every step in between. The factory that wins on price but loses track of what each order actually cost is the factory that discovers its margin at the end of the year.
This article explains how the pieces fit together from an accounting point of view and where the common errors hide. It does not cover regulatory or banking conditions, which are set by Bangladesh Bank, NBR, the BGMEA and your bank, and change.
The flow in one paragraph
The buyer places an order and opens a master export LC (or issues a contract) in your favour. Using that master document, you ask your bank to open a back-to-back LC (BTB LC) in favour of your fabric or accessories supplier, usually overseas. Materials are shipped, cleared through customs, and used in production. You export the finished garments, submit documents to your bank, and the export proceeds are realised. The BTB LC liability is settled from those proceeds.
Why the BTB LC matters for your books
A BTB LC is not just a payment instrument. It creates an obligation that lasts from the day it is opened until it is settled, usually after the garments are exported and paid for. During that time you need to be able to answer: how much BTB liability is open, which export order does it support, when does it mature, and what margin or charges have been paid?
| Stage | What happens | What to record |
|---|---|---|
| LC opening | Bank opens BTB LC; margin and charges are paid | LC margin as an asset or advance, bank charges and commission as cost or part of landed cost, as per policy |
| Shipment and customs | Goods arrive; duties, VAT and port costs are paid | Inventory at landed cost; input VAT tracked separately; LC liability recognised |
| Production | Materials issued to cutting, sewing, finishing | Work in progress by order or style, with wastage tracked |
| Export and realisation | Invoice raised, documents lodged, proceeds received | Export sales in BDT at the rate on realisation or as per policy; foreign exchange difference |
| BTB settlement | Supplier paid from proceeds, LC closed | LC liability cleared; interest or charges expensed |
Landed cost of imported fabric
The cost of fabric on your books is not the invoice value. It is the invoice value converted at the correct exchange rate plus everything you spend to get it to your factory: freight, insurance, bank charges, customs duty, clearing and forwarding, port and transport costs, and any non-recoverable taxes. Recoverable VAT is not part of cost. It is an asset claimed against output VAT. If you want the long version, see our article on import landed cost.
Why this matters in garments: the cost per metre or per kilogram drives your cost per piece, which drives the price you quote on the next order. If landed cost is understated because freight or LC charges were expensed in the month they were paid, you will quote too low.
Cost per garment: materials, wastage and conversion
- Fabric: consumption per piece from the cutting plan, plus wastage, multiplied by landed cost per unit
- Trims and accessories: thread, buttons, zippers, labels, polybags, cartons, each at its landed cost
- Conversion costs: direct labour, factory overhead, utilities, depreciation, allocated by a method you apply consistently
- Order-specific costs: testing, inspection, freight to port, CM or commission to agents
Track wastage as a quantity as well as a taka figure. If the buyer's consumption allowance is 1.20 metres per piece and you actually use 1.28, the extra is visible in the numbers, not buried in an average.
Export proceeds and the cash incentive
Bangladesh has operated cash incentive schemes for certain export products, paid after export proceeds are realised, subject to conditions and documentation set by the authorities. From an accounting point of view, the incentive is income that depends on realisation and on meeting the scheme conditions, so recognise it when your entitlement is reasonably certain rather than when the shipment leaves. Many factories record it only on receipt, which is simple but can distort monthly profit if the delay is long.
Foreign currency effects
You are dealing with a foreign currency both ways: dollars received for exports, dollars owed on imports. The BDT value of each moves with the exchange rate, so you will have exchange gains and losses between booking and settlement. Record these in a separate account rather than inside sales or inventory, and review them monthly. A factory with a large open BTB liability and a weakening taka can see a real margin hit that has nothing to do with production.
A practical monthly review for a garment owner
- 1List every open BTB LC with value, maturity date and the export order it supports.
- 2Compare materials imported against materials consumed per order. Look for stock sitting beyond what open orders need.
- 3Check landed cost per unit on each shipment against the cost assumed in the order costing.
- 4Review export documents submitted but proceeds not yet received, by age.
- 5Check the foreign exchange gain or loss and the incentive receivable separately from operating profit.
When LC records, inventory and order costing live in separate spreadsheets, none of these questions has a quick answer. The point of integrated books is not reporting for its own sake. It is knowing, before the next quotation goes out, what the last order really cost.