Are you thinking of sourcing clothes from the custom clothing manufacturers in Bangladesh or China for your private label clothing brand?
Have you found a few cheap clothing manufacturers in your local area and are about to pay them for production?
This is a must read before you continue any further.
In the business of clothing manufacturing, problems with payment gateways can lead to those small trickle down issues delays in the entire supply chain.
One problem for example, is receiving much less than what you initially sent to that Bangladesh clothing factory:
To get this right it is crucial to first know how the whole system works and what exactly is the best payment gateway that works for you!
Stages of Payment to Clothing Manufacturers
First, let’s talk about the stages of payment that has to be completed in order to receive the products from the manufacturer.
- The supplier develops sample(s) for you until you are confident that they know exactly what you want. There might or might not be a charge for providing a sample.
- For a Telegraphic Transfer (T/T) or bank transfer you send a certain percentage of the entire order value before production starts. Most manufacturers usually demand some percentage of the total price as prepayment. This has to be paid before the manufacturing begins (almost like a confirmation).If it’s a large order, sizeable enough to draft a letter of credit (L/C) then the document can be used against credit for financing the orders.You can also pay via Paypal and other online payment platforms.
- Your supplier purchases the materials and arranges production.
- You work with a quality assurance firm to inspect product quality (this is optional but its usually a good idea). That also incurs a charge.
- If the arrangement was a telegraphic transfer, you send the remaining percentage before shipment. Some buyers pay it in instalments during the manufacturing process or as a whole after they have received the delivery. In the case of an L/C the terms can be before shipment or after delivery.
- The supplier ships the goods and sends you the documents.
Now, it’s essential to keep all these steps in mind before going into business with a Bangladesh clothing factory or any overseas clothing factory for that matter.
After that, come the methods of payment.
The first thing you need to do is decide whether you’d want to conduct your transactions the old fashioned way or the modern way.
Payment Gateways in the Clothing Manufacturing Industry
1. L/C or Letter of Credit
This is most applicable when working with overseas clothing manufacturers. Take the Bangladesh clothing manufacturing industry for example. It’s an industry that runs on credit.
It is the commitment or guarantee by a bank on behalf of the buyer to the manufacturer about a certain amount of payment subject to the the fulfilment of certain documentary conditions. It is basically a two-way street where, both the buyer and seller have advantages.
Advantages of L/C
- For Buyers
- They can control the time period for the shipping of goods.
- They can demonstrate their solvency through the letters of credit (Working capital = Current Assets – Current liabilities).
- It helps them avoid pre-payment.
- For Sellers
- After documentation of a L/C, it is unalterable. Thus, the seller will definitely get his payment if he maintains his part of the agreement.
- The seller will get proper specifications of product, quality standards, and specific shipment date.
- The opportunity to get financing.
This method is mainly recommended for high value and high net worth orders as the bank ensures that both the manufacturer and buyer follow their part of the agreement.
To perform a L/C, there must first be a contract between the importer and the exporter where they both agree to follow the L/C as the payment gateway. Then, the buyer goes to his respective bank to issue it. If the bank accepts it, then, the L/C that has been issued gets sent to the manufacturer’s bank.
Here is a brief introduction into the concept of the back to back L/C:
2. T/T or Telegraphic Transfer
T/T is preferred by a lot of clothing entrepreneurs as a payment gateway and there are a lot of reasons why.
This is how it works; you go to your bank and inform them that you need to transfer money. Afterwards, check what information and documents your bank or international money transfer service requires to make the T/T payment.
Then, collect the beneficiary name, address and other account details and make sure you get them right. A small mistake can delay your transactions for weeks or even block it.
Next, you’ll have to process your transaction. It can be through phone, online or in person; just ensure that you have paid all your transaction fees and if possible, save a transaction record and send it to your clothing supplier.
Advantages of T/T
- It is cost effective and less time-consuming
- You know exactly how much is being transferred
- Can be traced
- Large range of currencies available for exchange
3. Online Payment Gateways
Everyone knows about the common payment methods such as PayPal or Venmo. These gateways are easily accessible and are user-friendly. Like telegraphic transfer there is a transfer cost.
These systems might be pretty straightforward to use in other countries but for developing countries like Bangladesh, these methods aren’t so popular.
Very few clothing manufacturers are familiar with these platforms and they tend to avoid using these methods due to the nuances that need to follow to obtain access to them in developing countries.
The small issues with payment gateways which currently exist have made it more difficult to maintain business overseas. Not only is it hard to attract potential buyers but it also increases the rejection rate for manufacturers here.
Decentralized blockchain based payment solutions are definitely the future of facilitating payments in the clothing manufacturing industry. They keep buyers and suppliers accountable, and ensure that there is transparency all throughout the supply chain. The best part is the speed at which transitions can take place. There will be very little need for the verifications that have to take place before the way transactions take place now.