UAE: clouds over the economic outlook

Payment Practices Barometer

  • United Arab Emirates
  • Agriculture,
  • Chemicals/Pharma,
  • Metals

10th June 2020

Like all economies around the world, the UAE is dealing with an unprecedented disruption of business activity and tourism

Introduction

Like all economies around the world, the UAE faces the disruptive impact that the pandemic has had on trade, tourism and business activity in the country, compounding years of weak growth following the collapse in oil prices.

Despite the current measures planned to prop up the economy during the coronavirus pandemic, businesses interviewed for this survey felt pessimistic about their future and about the trends in their B2B customers’ payment practices over the coming months.

Key takeaways from the report

More credit-based B2B transactions were recorded in the UAE than anywhere else in Asia, according to the results of our survey, with a majority associated with domestic as opposed to international B2B trade. For many of the businesses surveyed, this pointed to an example of short-term financing sought by their customers to support their own cash flow.

Regardless of the reasons for the widespread use of B2B credit, it is important to note that a significant amount of business capital is tied up in account receivables. Whilst it is a way to establish and strengthen B2B relationships, companies are also exposed to the risk of payment delays or non-payment. Bank guarantees and letters of credit are frequently used by businesses in the United Arab Emirates to mitigate the risk of non-payment. However, with an anticipation of worsening payment practices including an increased risk of payment default, businesses in the UAE might benefit from further enhancing their credit management processes. This could include a regular and structured approach to pre-credit checks, regular monitoring of buyer’s risks and outsourcing invoice
collection to a professional agency.

Key survey findings for the UAE

  • Trade credit plays a key role as a source of short-term finance in the domestic market
  • UAE extends  longest payment terms in Asia
  • Letters of credit the most often used B2B trade financing tools in the UAE
  • Businesses hit hard by late payment in B2B trade
  • Majority of businesses in the UAE anticipate worsening of B2B customers’ payment habits

Interested in getting to know more?

For a complete overview of the payment practices in the UAE and in the chemicals, agri-food and steel/metals industries in the UAE, please download the complete report.

 

 

 

 

 

 

 

Disclaimer

The statements made herein are provided solely for general informational purposes and should not be relied upon for any purpose. Please refer to the actual policy or the relevant product or services agreement for the governing terms. Nothing herein should be construed to create any right, obligation or responsibility on the part of Atradius, including any obligation to conduct due diligence of buyers or on your behalf. If Atradius does conduct due diligence on any buyer it is for its own underwriting purposes and not for the benefit of the insured or any other person. Additionally, in no event shall Atradius and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental, or consequential damages arising out of the use of the statements made information herein.