The impact of work order cancellations in apparel sector has trickled down to its smallest partners
Rainbow Painting, a small factory that does painting on T-shirts, was shut down last month in line with the closing down of most businesses to rein in the coronavirus spread.
With production stopped and a suspension of payment for the work already completed and handed over to garment factories, Maniruzzaman Khan is worried that he might fail to pay 45 workers of his backward linkage unit, located under Turag Police Station in the capital. There are nearly 100 backward linkage factories in the area.
The impact of work order cancellations worth nearly $3 billion confronting the garment industry has already trickled down to its smallest partners like Rainbow Painting, whose roles remain in obscurity for policymakers and buyers.
A report by the Centre for Global Workers' Rights published in March says 45.8 percent of Bangladeshi suppliers reported that most of their nearly completed or entirely completed orders had been cancelled by their buyers, while 5.9 percent had all of the orders cancelled.
Once orders were cancelled, 91.3% of the buyers refused to pay for the production cost of the suppliers.
"We mostly work on subcontract through merchandisers or marketing managers of large garment factories. We are in big trouble," said Jewel Mollah, owner of Paradise Screen Design located in the same area.
His factory has 55 workers who do prints on T-shirts.
Jewel said he delivered a consignment about six months ago to a garment factory that now has told him that payment will be delayed further because of the coronavirus pandemic.
"We do not have any association. Nor would our workers take to the streets to demand their pay," said Maniruzzaman.
But they are very vulnerable as 70 percent of them are aged men, widowed women and young people – probably among the poorest of the poor – pressed against the need to share the financial burdens of their families, he added.
Rainbow Painting has been struck hard by a non-payment of $60,000 for goods delivered between November and March.
Similar are the challenges for the units that manufacture garment accessories or work in the packaging and embroidery business.
The usual process of payment
Such factories in a regular situation get paid two to three months after handing over the goods to garment factories.
In most cases, garment factories open LCs (letters of credit) with local banks on receiving the goods, said several backward linkage factory owners. Then the suppliers of the goods get about 90 percent of the payment in loans from banks to keep their production running.
The remaining amount is kept aside as interest.
The factories that receive the goods are obliged to make payments to the banks in the next three to four months.
There is an urgency now, said Amir Hossain, owner of Asa Packaging. His factory sees payments of more than Tk1 crore stuck for an unknown period of time.
Garment factories have recently stopped the process of issuing LCs and "are not signing off documents that will enable us to get loans," Maniruzzaman said.
"If we get the money for the work we have already completed and handed over, our businesses will be saved from being crushed for at least the next two months and we will be able to pay our workers," he added.
The printing, packaging, embroidery and accessories factories do not want their partners to be named because of their businesses being highly dependent on trust and long-term relationships.
They acknowledged the crisis that the garment factories are in but at the same time voiced concerns that there is no bailout package for them.