UAE: DSO upward trend worries businesses

Introduction

As both the global and local economies start to pick up following the pandemic, businesses should be alert to heightened risks of insolvency, especially where a growing order book may require more liquidity than a business has available. if not strategically managed, extending credit to B2B customers, along with the cost of managing their accounts receivable, could place additional financial strain on businesses.

The Atradius Payment Practices Barometer provides us with the valuable opportunity to  hear directly from businesses how they are coping with changed trading and economic  circumstances caused by the pandemic. The survey questionnaire was completed by  businesses in the United Arab Emirates during Q2 2021, a full year after the World Health Organisation declared Covid-19 a global pandemic.

Key takeaways from the report

Amid slowdown of the global economy, alongside severe pandemic-induced contractions in key markets, the total value of the B2B sales made on credit by survey respondents in the United Arab Emirates dipped significantly over the past year. However, most businesses polled in the economy continued to offer similar payment terms to those offered prior to the global economic crisis.

However, profits can be undermined if businesses need to spend margins on resolving late payments or absorbing bad debts. As the Payment Practices Barometer survey in the United Arab Emirates reveal, late payments are a growing issue for businesses in the
economy. In particular, survey respondents expressed concern over long-term outstanding B2B invoices of high value, which affect Days Sales Oustanding (DSO) trend. This represents a top concern for a significant number of businesses in the United Arab Emirates, who believe that DSO will deteriorate over the coming months.

Therefore, strong and proactive credit management processes can help support on-time payments and prevent late payments from escalating, negatively impacting business profitability.

Key survey findings for the United Arab Emirates 

• The United Arab Emirates records the lowest percentage of B2B credit sales across the countries surveyed in Asia during the pandemic
• Businesses offer open credit to win new customers more often than in Asia
• Over half of businesses in the United Arab Emirates reported increased accounts receivable administrative costs
• Liquidity issues and potential drop in demand top future business worries
• Looking ahead, businesses in the United Arab Emirates are optimistic about an
  improvement in exports flows, 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.

Interested in getting to know more?

For a complete overview of the payment practices in the United Arab Emirates and in the local agri-food, chemicals/pharma and steel/metals industries, please download the complete report.