New Coface Survey Shows Optimism Among UAE Non-Oil Private Companies
Coface, a worldwide leader in trade credit management solutions and risk information services, has published its first-ever corporate payment survey for the UAE region, which was conducted among 136 companies from 11 different sectors with the aim of understanding trends and developments in corporate payments.
The survey’s participants reported that payment terms are lengthening. Companies have reacted to lower sale volumes, stemming from weaker global trade and tightened liquidity, by delaying payments. Even so, despite these lengthier payments, the majority of the respondents are optimistic about the future economic outlook for the UAE and GCC region.
According to the survey, the majority of companies in the UAE and the GCC are optimistic about the region’s future and 31 percent cited an improvement in sales over the past six months.
Most exporters share a cautiously positive outlook, with 43.5 percent expecting increased profitability, 52.2 percent forecasting higher sales, and 39 percent anticipating that cash flows will improve. Expectations remain quite positive among domestic suppliers as well, as 42 percent of those surveyed believe that their profitability will improve either moderately or substantially within the next six months, while 59 percent (mainly those in the construction, agrofood and retail sectors) expect to see an improvement in sales during this period.
Coface’s analysis reveals that the GCC region will be the leading export market, followed by the MENA region. The economies of the GCC region are rising to the challenge this year, as their export markets continue to record the largest volume of sales in the Middle East. Of those companies surveyed in the MENA region, 26 percent intend to export to the GCC, benefiting from its proximity, cultural similarities, and economic integration.
New opportunities in the real estate market are expected due to new tourist attractions and reforms that are supporting the construction sector in 2017. The survey also indicates that the retail sector could present opportunities, owing to the country’s strong base of wealthy consumers. However, the sector is still subject to downward pressures, due to tight fiscal conditions.
In line with these cautiously positive perspectives, 43 percent of companies mentioned that they would be recruiting new staff over the next six months.
UAE companies—exporters and domestic suppliers alike—reported average payment terms of 60 to 90 days, with average payment delays of 30 to 60 days. Among exporters, the energy sector is suffering from the longest average payment delays, with over 210 days. On the domestic front, the construction sector is experiencing the longest payment terms, with an average of 97 days and delays of 93 days.
Respondents cited their client’s financial difficulties and administrative inefficiencies—such as weaknesses in the debt collection process—as the main reasons for non-payment. Delays in payment, in turn, are resulting in a squeeze on liquidity for 52 percent of companies, additional interest costs for 44 percent, and loss of income for 42 percent.
Outstanding receivables and unpaid invoices accounted for a single digit percentage of total annual sales on average. The majority of exporters reported that outstanding receivables and unpaid invoices accounted for between two to five percent of their total annual sales. On the domestic suppliers side, 18 percent of respondents said that outstanding receivables and unpaid invoices account for less than two percent of their total sales, while 20 percent said that they accounted for five to 10 percent of sales and 16 percent for 20 percent of sales. Coface’s experience has shown that 80 percent of outstanding receivables with payment delays in excess of six months will not be fully paid at all.
An important trend highlighted by the report is that 52.2 percent of respondents said that average payment delays for overseas customers were worse than for domestic customers. This is an indicator of tight financial conditions in foreign markets.
Over half of the exporters said that the UAE has the best payment terms in the region, while 36.8 percent qualified the whole of the GCC as having the longest payment terms.
For exporters, the most frequent payment periods during the last six months were 60 days (39.1 percent) and 90 days (30.43 percent). Almost 35 percent of the respondents said that maximum payment terms during the last six months were 120 days, while 26.1 percent said that maximum payment terms were 180 days or more (ultra-long overdue amounts).
The majority (61 percent) of the respondents that are focused on the domestic market reported that average payment terms over the last six months varied between 60 to 90 days. The maximum payment terms offered by domestic companies to their clients was shorter than those granted by exporters, as only 27 percent offered 120 days to clients (compared to 35 percent of exporters).
Average payment delays are shorter for domestic companies than for exporters. Average payment delays of less than 30 days were noted by 11 percent of domestic companies (compared to nine percent for exporters), while 29 percent reported between 30 to 60 days (48 percent for exporters) and 27 percent between 60 to 90 days (13 percent for exporters). Average payment delays of over 210 days were only cited by four percent of surveyed companies (nine percent for exporters).