Survey findings for the UAE
Pandemic economy sees significant drop in credit sales
The United Arab Emirates has the lowest percentage of B2B credit sales across the countries surveyed in Asia. 50% of all B2B sales in the industries we surveyed (agri-food, chemicals and steel/metals) are made on credit, compared to 54% for Asia as a whole. The use of credit by businesses in the United Arab Emirates has also dropped dramatically year-on-year from 64% to the current 50%. However, although the number of credit sales dropped, a significant proportion of businesses told us they did not alter the frequency with which they offered credit. This was on average 44% of respondents, almost in line with the response rate in Asia. In contrast, 37% of the businesses reported increasing the frequency of credit sales over the same time frame. The frequency with which businesses trade on credit indicates that open credit still plays a significant role in United Arab
Emirates trade relations, albeit less than seen across Asia.
A comparison of the use of open credit between domestic and export markets shows that businesses are more likely to offer credit to domestic customers. 54% of credit sales were to domestic customers (average for Asia: 56%). Whereas export credit sales were reported by 46% of respondents, a little higher than the 44% average for Asia. From an industry perspective, the United Arab Emirates chemicals industry is the most likely to trade on credit terms, with an average of 51% (lower than the 54% average for the industry in Asia).
The steel/metals industry ranks second, with 50% credit sales (consistent with the average in the same industry in Asia). The agri-food industry follows with an average of 46% credit sales (lower than the 52% average for the industry in Asia).
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Businesses offer open credit to win new customers more often than in Asia
More businesses polled in the United Arab Emirates (37%) than across Asia (26%) told us they increased the use of open credit to win new customers. 44% of businesses increased the frequency of trading on credit over the past 12 months to encourage repeat business.
This was significantly lower than the
54% response rate across Asia. Increasing the use of open credit to stay competitive was reported by just over 10% of businesses polled in the United Arab Emirates and across Asia alike. Less than 10% of businesses in the United Arab Emirates and Asia reported offering credit to provide customers with short-term finance.
of the businesses polled in the United Arab Emirates, compared to 37% in Asia overall, believe that their DSO will deteriorate over the coming months chiefly due to less efficient collection of overdue B2B invoices.
Atradius Payment Practices Barometer – June 2021
Over half of businesses reported increased credit administrative costs
More businesses in the United Arab Emirates (52%) than in Asia (49%) reported an increase in administrative costs associated with management of accounts receivable arising from B2B trade in the year that followed the pandemic outbreak. Most of this was spent on maintaining a credit department dedicated to assessing and monitoring customer credit risk using information acquired either through external specialist agencies or financial statements and bank references. Fewer businesses in the United Arab Emirates (32%) than in Asia (41%) reported no change, and more businesses in the United Arab Emirates (14%) than in Asia (9%) reported a decrease in the administrative costs.
The capital costs (i.e. financing or interest paid during the time-lag between the credit sale and the settlement of the invoice) either did not change or increased significantly for the same percentage of businesses in the United Arab Emirates over the past year, likewise for their peers in Asia. Interestingly, 42% of the businesses polled in the United Arab Emirates (21%) than in Asia reported decreased costs associated with collection of overdue B2B invoices. This is likely due to more effective invoice collection efforts in the United Arab Emirates than in Asia. This was most often cited by businesses that frequently adjusted payment terms to reflect varying credit risk profiles.
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Payment terms hold steady year-on-year
Over the past year, most of the businesses we polled in the United Arab Emirates (49%) did not alter their average payment terms. Those that that did alter payment terms most often gave their customers longer to pay (cited by 41% of businesses in the United Arab Emirates and 35% in Asia). Only 10% of the businesses polled cut payment terms shorter than last year (in line with the regional average).
52% of the businesses polled in the United Arab Emirates most often set payment terms according to their company standards (average for Asia: 53%). More businesses in the United
Arab Emirates (45%) than in Asia (39%) determined payment terms according to the reference parameters of their profit margins. Additional reasons cited by respondents included reflecting the payment terms of their own suppliers, as well as being guided by the availability and cost of capital needed to finance credit sales. This suggests a strong focus on working capital requirements, although this appears to be less strong in the United Arab Emirates than in Asia. A breakdown of payment terms by industry can be seen below, in the overview by industry section.
Late payments hit businesses harder than across Asia
60% of all B2B invoices in the United Arab Emirates remain unpaid, significantly higher from the 50% average for Asia. It took business customers an average of 40 days longer, compared to last year’s 37-day average, to settle overdue invoices. A similar trend was evident in the case of long-term overdue invoices (over 90 days overdue), which appeared to impact businesses in the United Arab Emirates slightly more than in Asia. Despite such a large proportion of late payments, more businesses in the United Arab Emirates (12%) than in Asia (7%) reported a decrease in the
frequency of late payments over the past year. nearly half of the businesses polled in the United Arab Emirates and Asia alike reported no change and fewer businesses in the United Arab Emirates (36%) than in Asia (40%) reported an increase over the past year. Interestingly, despite spending more on the administrative costs associated with managing credit, bad debt losses and write-offs amounted to 8% in the United Arab Emirates (compared to last year’s 1%). This is higher than the 5% reported in Asia.
Liquidity issues and potential drop in demand top future business worries
More businesses in the United Arab Emirates (29%) than in Asia (26%) expressed concern about maintaining adequate cash flow over the coming months. A potential fall in demand for their products and services concerns more businesses in the United Arab Emirates (20%) than in Asia (15%). Interestingly, businesses in the United
Arab Emirates appear far more worried than the regional average about possible restrictions to bank lending alongside the continuation of pandemic disruptions to supply chains. Conversely, an increase in geopolitical tensions, is less of a worry to businesses in the United Arab Emirates than their Asian peers
Half of businesses express upbeat business confidence
Half of the businesses polled in the United Arab Emirates (on par with the regional average) are optimistic about an improvement in their business performance (sales and profits) over the next 12 months. Twice as many respondents in the United Arab Emirates (32%) than in Asia (15%) believe the anticipated improvement will be mainly due to increased exports, which are expected to offset last year’s sharp drop in the volume of trade. Interestingly, this is the highest response rate citing this amongst the countries surveyed in Asia.
This is may be a reflection of the fact that the United Arab Emirates is among the world’s most dynamic markets in terms of export trade. Fewer businesses in the United Arab
Emirates than in Asia believe that the expected improvement in business performance will be mainly due to either a rebound of the domestic economy or to a combination of this latter and healthier export flows. Against this backdrop, more businesses in the United Arab Emirates (36%) than in Asia (32%) are of the opinion that B2B credit sales will become an increasingly widespread business practice over the next 12 months. The main reason cited for this is to stimulate demand from B2B customers particularly in the industries where it may have dropped due to the pandemic economic downturn. This is followed by the desire to allow B2B customers time to pay.
Businesses turn to cash to protect accounts receivable
More businesses polled in the United Arab Emirates (46%) than in Asia (38%) told us they plan to request payment in cash or on terms other than open credit over the coming months. This suggests an increasing perception of customer payment default arising from trading on credit. For those businesses that plan to continue offering open credit, the majority (45%) will use in-house retention and management of customer credit risk through selfinsurance (regional average: 43). In addition, many businesses told us they plan to request payment
guarantees and of letters of credit more often. 40% of businesses plan to employ credit insurance over the coming months (more than the regional average of 37%). Businesses also plan to offer discounts for early payment of invoices more often, and intensify their invoice collection efforts, in particular of long-term overdue invoices. 36% of the businesses polled in the United Arab Emirates believe that DSO will deteriorate over the coming months. This is on par with the average for Asia.