diff --git a/docs/source/en/generation_strategies.md b/docs/source/en/generation_strategies.md
index 9e2cbf485c4..6453669f689 100644
--- a/docs/source/en/generation_strategies.md
+++ b/docs/source/en/generation_strategies.md
@@ -468,9 +468,17 @@ def generate(model, input_ids, generation_config=None, left_padding=None, **kwar
 Follow the recommended practices below to ensure your custom decoding method works as expected.
 - Feel free to reuse the logic for validation and input preparation in the original [`~GenerationMixin.generate`].
 - Pin the `transformers` version in the requirements if you use any private method/attribute in `model`.
-- You can add other files in the `custom_generate` folder, and use relative imports.
 - Consider adding model validation, input validation, or even a separate test file to help users sanity-check your code in their environment.
 
+Your custom `generate` method can relative import code from the `custom_generate` folder. For example, if you have a `utils.py` file, you can import it like this:
+
+```py
+from .utils import some_function
+```
+
+Only relative imports from the same-level `custom_generate` folder are supported. Parent/sibling folder imports are not valid. The `custom_generate` argument also works locally with any directory that contains a `custom_generate` structure. This is the recommended workflow for developing your custom decoding method.
+
+
 #### requirements.txt
 
 You can optionally specify additional Python requirements in a `requirements.txt` file inside the `custom_generate` folder. These are checked at runtime and an exception will be thrown if they're missing, nudging users to update their environment accordingly.
diff --git a/src/transformers/dynamic_module_utils.py b/src/transformers/dynamic_module_utils.py
index 6a88859e0aa..7a498721a91 100644
--- a/src/transformers/dynamic_module_utils.py
+++ b/src/transformers/dynamic_module_utils.py
@@ -402,10 +402,11 @@ def get_cached_module_file(
         if not (submodule_path / module_file).exists() or not filecmp.cmp(
             resolved_module_file, str(submodule_path / module_file)
         ):
+            (submodule_path / module_file).parent.mkdir(parents=True, exist_ok=True)
             shutil.copy(resolved_module_file, submodule_path / module_file)
             importlib.invalidate_caches()
         for module_needed in modules_needed:
-            module_needed = f"{module_needed}.py"
+            module_needed = Path(module_file).parent / f"{module_needed}.py"
             module_needed_file = os.path.join(pretrained_model_name_or_path, module_needed)
             if not (submodule_path / module_needed).exists() or not filecmp.cmp(
                 module_needed_file, str(submodule_path / module_needed)