Over half of businesses also report an increase in administrative costs associated with management of accounts receivable, mainly on assessing and monitoring customer credit risk.
According to the results of the latest “Payment Practices Barometer” survey conducted in Asia by Atradius, 60% of the B2B invoices on credit in the United Arab Emirates (UAE) were not settled on time, which is significantly higher than the 50% average for Asia as a whole. On average, it took businesses 40 days to collect payment from overdue invoices. More importantly, 8% of the B2B invoices in the UAE were write-offs, up considerably from 1% in last year’s survey results.
Over half (52%) of businesses also reported an increase in administrative costs associated with the management of accounts receivable, mostly spent on maintaining a credit department dedicated to assessing and monitoring customer credit risk.
The survey also revealed that the value of sales through open credit in the UAE dropped year-on-year, from 64% to 50%, which may reflect a contraction in sales amid the pandemic. However, more businesses polled in the UAE (37%) than in other markets across Asia (26%) increased the frequency of using open credit. Encouraging repeat business and winning new customers are the two most common reasons for the use of open credit, highlighting the pivotal role that this practice plays in enabling trade.
Looking ahead, compared with Asia (37%) overall, far more businesses polled in the UAE (53%) believe that their Days Sales Outstanding (DSO), the average number of days to collect payment for credit sales, will deteriorate over the coming months.
Respondents indicated that the greatest challenges to business profitability in 2021 will be maintaining adequate cash flow (29%), followed by falling demand for products and services (20%) and the containment of costs (16%). Despite these concerns, half of businesses surveyed in the UAE are optimistic about an improvement in their business performance over the next 12 months. Twice as many respondents in the UAE (32%) as in Asia (15%) believe this anticipated improvement will be mainly due to increased exports, which may reflect the UAE being one of the world’s most dynamic markets in export trade.
“The optimism among surveyed UAE businesses on their performance may reflect future opportunities in the UAE’s credit sale market, as the economy is supported by one of the world’s highest COVID-19 vaccination rates as of late May. However, expectations of a rapid rebound may be fragile amid valid concerns about challenges to business profitability. Under these circumstances, businesses in the UAE should assess how to strengthen their credit management processes to be more comprehensive and efficient. In particular, businesses should frequently adjust payment terms to reflect varying credit risk profiles and ensure effective invoice collection,” said Schuyler D’Souza, Managing Director Middle East at Atradius.
Atradius conducted the survey in the second quarter of 2021, collecting responses from 1,200 businesses across Asian markets including the UAE, China, Hong Kong, Indonesia, Singapore and Taiwan.