UAE firms fear spike in payment defaults as pandemic chokes business
Mita Srinivasan
10x Industry

UAE firms fear spike in payment defaults as pandemic chokes business

Atradius’ Payment Practices Barometer highlights the importance of risk management to businesses

Corporations in the UAE expect increased delays in payments from customers, a growing risk of default and an overall weakening in business performance as the country copes with the disruptive impact of COVID-19, according to Atradius' latest Payment Practices Barometer survey.

With an economy struggling from the collapse in oil prices and major sectors, such as trade and tourism, hit by the pandemic, 53 percent of respondents in the UAE said they were concerned about a deterioration in the payment practices of B2B customers and a spike in long overdue invoices in the coming months. Nearly 30 percent reported they needed to delay payments to their own suppliers.

"Like all economies around the world, the UAE is dealing with an unprecedented disruption of business activity," noted Schuyler D'Souza, Managing Director Middle East, Atradius. "This is especially true of the trade exchanges in which the UAE plays a central role at a global level. To face the growing challenges highlighted in the survey findings, it is essential for UAE businesses to protect their company liquidity from unrecoverable trade receivables. This involves reducing customer credit risk exposure to levels that are manageable for the company and which can, in turn, free up capital that can be used to weather these challenging economic times."

These findings are particularly notable as the UAE already offers the longest average payment terms -- 57 days -- compared to the 43-day average in Asia, leading to a sizeable proportion of working capital becoming tied up in receivables. Further, the proportion of credit-based B2B transactions in the UAE at 64 percent is significantly higher than the 56 percent average in Asia, pointing to the pivotal role that trade credit plays in the country.

Other key findings include:

  • 72 percent of the total value of B2B invoices issued by UAE respondents is overdue

  • Nearly 60 percent expect their industry's indebtedness to trigger a greater dependence on bank finance

  • 49 percent are worried about a decline in business performance; the remainder felt they did not have a clear view of the future

In this uncertain environment, enhanced credit management practices, such as regular pre-credit checks, monitoring buyer's risks and outsourcing invoice collection to a professional agency, can help businesses protect cash flows and enhance investment capacity, which is crucial for growth.