Subcontract Knitting Without Losing the Buyer Balance

Why subcontracting breaks the buyer balance

Every commission knitting factory runs out of capacity sometimes. A buyer brings a big program, a machine with the right gauge or dia is busy, or a delivery date moves forward. Sending part of the work to another knitting factory is the normal answer.

The risk is not the knitting. It is the paperwork. The buyer's yarn now sits in two places, the fabric comes back on someone else's challan, and the buyer still holds you responsible for every kilo they gave you. If the yarn sent out, the fabric received back and the process loss at the other factory are not on the same record as your own production, the buyer balance stops adding up. Usually you find out at the end of the program, when the buyer asks for the yarn reconciliation and the numbers are short.

This guide is for owners and accounts teams who send work out, and for the factories that take it in.

Rules and buyer conditions to check first

Subcontracting export work is regulated in Bangladesh, and the rules have changed several times. Check the current position with your customs bond adviser before you send yarn out. Recent points from the public record:

Bond licences and a written contract. In September 2024, Dhaka Tribune reported that the National Board of Revenue (NBR) issued 15 instructions on subcontracting and opened it again to non-RMG exporters. Conditions included a contract between the owner of the imported materials and the contract manufacturer under the Contract Act 1872, valid and renewed bonded warehouse licences for both factories, no subcontracting with a suspended licence or BIN, and use of raw materials within the permitted storage period.
Factories without bond licences. In October 2021, The Business Standard reported that the NBR was considering requiring a bond licence for subcontracting factories that take export-oriented orders. BKMEA's Mohammad Hatem said then that about 600 regular subcontracting factories had no bond licence.
Buyers' own rules. After the Tazreen fire and the Rana Plaza collapse, buyers set strict conditions on subcontracting. In 2018 the BGMEA president told The Daily Star that subcontracting is allowed only if the subcontracting factory is very compliant. Many brands require their approval before any part of an order moves to another factory.
You stay responsible. International customs practice under the WCO Revised Kyoto Convention, as described in a 2015 World Bank assessment of Bangladesh's bond regime, lets another party process bonded goods only while the licence holder remains responsible to Customs.

The practical lesson is the same in every case: put the subcontract in writing, keep both factories' papers valid, and be able to show where every kilo of the buyer's yarn went.

One program, two factories

The most common mistake is to open a new, separate job for the subcontracted part. Then the buyer's program shows less yarn used and less fabric delivered than it really has, and the subcontract job floats on its own with nobody checking it against the buyer.

Keep the subcontracted kilos inside the buyer's program instead. The program, and its program reference, stays the key for everything: the yarn the buyer gave you, the part you knit yourself, the part sent out, the fabric that came back, the rejects, the deliveries and the bill. The subcontractor becomes a second location for that program, with its own ledger, not a second program.

Record	Buyer side (what you owe the buyer)	Subcontractor side (what they owe you)
Yarn	Buyer yarn received by lot, still the buyer's	Yarn issued to the subcontractor by lot, on a numbered challan
Fabric	Good fabric delivered to the buyer	Grey fabric received back, by roll and kg
Loss	Process loss against the buyer's wastage allowance	Loss at the subcontractor against the allowance you agreed with them
Rejects	Never billed to the buyer	Recorded by defect; who pays is set in your contract
Money	Your bill to the buyer, on delivery	The subcontractor's bill to you, in the supplier ledger

The flow, step by step

Agree terms before the yarn leaves. Construction, GSM and dia, kilos, rate per kg, delivery date, the wastage allowance, how rejects are handled and how weight is agreed. If the buyer requires approval for subcontracting, get it in writing.
Issue yarn on a challan. Lot number, count, brand, number of bags or cones and kg, signed by the subcontractor's receiver. The yarn is still on the buyer's balance; it has only moved location.
Receive fabric roll by roll. Weigh each roll on arrival and record it against the program and the issue challan. Do not wait for the last delivery.
Inspect on arrival. Check the rolls before they go to the buyer and record rejects by defect, the same way you do for your own machines (see our guide to grey fabric rejects).
Get the leftover yarn back. Unused yarn returns on a return challan, by lot. Loose cones and part bags are where kilos go missing.
Close the subcontract. Yarn issued = fabric received + yarn returned + loss. Compare the loss with the allowance you agreed and settle the difference before you pay their final bill.
Close the buyer program. Only then reconcile the whole program with the buyer, with your own and the subcontracted kilos together (our guide to the yarn wastage allowance shows the full reconciliation).

A worked example

These figures are for illustration only; use the allowances in your own agreements. A buyer gives you 5,000 kg of yarn for one program. You knit 3,000 kg of it yourself and send 2,000 kg to a subcontractor, with an agreed process loss allowance of 3% at both levels.

Subcontractor ledger	kg
Yarn issued (2 challans)	2,000
Grey fabric received back	1,890
Yarn returned on challan	40
Loss (2,000 − 1,890 − 40)	70 (3.5% of 1,960 kg used)
Allowed at 3% of 1,960 kg	58.8
Excess loss to settle with the subcontractor	11.2

Without the subcontractor ledger, those 11.2 kg simply vanish into the buyer's program. With it, you know exactly which factory used them and can settle before paying the subcontractor's last bill, instead of absorbing the shortfall when the buyer reconciles.

Quality and rejects at the subcontractor

The buyer sees your name on the delivery, not the subcontractor's. Treat subcontracted rolls like your own: inspect them before delivery, record rejects by defect, keep rejects off the buyer's bill, and keep the subcontractor's roll numbers so a complaint can be traced back to the factory and machine that knitted the roll. If one subcontractor keeps returning more rejects or more loss than the others, the ledger will show it within a few programs.

Checklist for subcontract knitting

Written subcontract with rate, specs, allowance, reject rule and weight rule
Buyer approval, if the buyer requires it
Bond and licence papers checked for both factories (export work)
Yarn issued by lot on a numbered, signed challan
Subcontracted kilos kept inside the buyer's program, not a new job
Fabric weighed and inspected roll by roll on arrival
Leftover yarn returned on a return challan
Subcontract closed (issued = received + returned + loss) before the final payment
Subcontractor's bill posted to the supplier ledger, matched to fabric received
Buyer program reconciled with own and subcontracted kilos together

How AccelKnit helps

AccelKnit, our knitting ERP, was shaped on a working knitting factory and puts one Program ID behind every record. Subcontract is one of its 12 modules, next to Store (buyer yarn by lot), Delivery (coded, printable receipts), Yarn return challan with a per-buyer wastage allowance, a live buyer balance and a supplier ledger. Subcontracted knitting is tracked alongside your own production, so the buyer's balance stays complete. Rejects are recorded by defect and never billed, and deleting an entry needs a comment and admin approval. It works in English and Bangla. See the modules on the AccelKnit page, read how to bill commission knitting on delivery, or book a free demo on one of your own programs.

Frequently asked questions

Does subcontracted yarn stay on the buyer's balance?

Yes. The buyer's yarn is still the buyer's when it moves to a subcontractor. Record it as yarn issued to another location within the same program, so the buyer balance includes it until it comes back as fabric, returned yarn or allowed loss.

Who pays for excess process loss at a subcontractor?

That depends on your contract. Agree a wastage allowance with the subcontractor before the yarn leaves, close their ledger at the end of the job, and settle any loss above the allowance before paying their final bill.

Is subcontracting export knitting allowed in Bangladesh?

It has been allowed under conditions set by the NBR, including a written contract and valid bonded warehouse licences, and many buyers have their own approval rules. The rules have changed over the years, so check the current position with your customs bond adviser. This is general information, not legal advice.

General information, not legal advice. Check current NBR instructions and your buyers' subcontracting policies before you send work out.

Subcontract knitting without losing the buyer balance