Credit Management Landscape


My continued presence in the UAE and Middle East has provided me with a deep insight into the regions Credit Management landscape. At best, the country’s credit management position can be termed as evolving but nowhere near an acceptable level of maturity. This is evident from the way so many companies here manage their credit procedures. In their race to book orders and close sales, they completely ignore basic standard credit management compliance steps. In turn, this creates a high potential for future disputes and losses.

Given the current market conditions it makes all the more vital to opt for a stringent credit management process. This process needs to commence from an early stage of engagement where the sales person is still negotiating terms with a new prospect or with a client. After all, in the world of finance and common sense a sale cannot be considered a sale until the money has actually been collected and is in the bank.

The current trend

While there is increasing pressure to adopt some sort of credit policy within the organisational framework in the UAE, there is still a huge gap in competency. The UAE has a very unique multi-cultural society, each bringing their own style and culture to the working environment. There are also many international companies with a presence here that may have a limited workforce from their own country. Inevitably they will employ from the local workplace too, which will be a mix of nationalities. All of this adds very unique dynamics to the business and potential problems too. Given the mix of cultures and opinions, somewhere in this mix the company will have to try and define a credit management policy that is relevant to the market and the business internally. Whilst there isn’t one policy for all, a simple and effective policy can be developed which will take into consideration all the dynamics of the business, industry and client base.

Some noteworthy justifications for a credit policy

A key challenge is the fragmented and unstructured rapid growth of market and infrastructure in and around the UAE. Commercial laws are currently unable to cope with this pace and have lagged behind. This vulnerability has opened the doors to attack by unscrupulous companies and individuals. This makes it all the more vital to have a strong internal credit policy.

This brings me to some of my own experiences during my work in the Middle East. Many companies do not make any provisions for debt or writing off debt. They show outstanding payments under collections even when they are aware that payment will not materialise for these bad clients. Here are some examples I have come across:

  1. At one meeting, I was given financial statements that showed 15 different debtors totalling almost 18 million AED. All these were dating back between 8 to 15 years! Each debt remained outstanding because the debtor company had been either sold or shut down. Still, the client continued showing this amount as ‘Outstanding Collections’ and even wanted to hire my firm to collect the money. They knew that this would be impossible yet they wouldn’t write off the monies.
  2. In another interesting case, we were asked to examine another company’s financial statements. While we agreed to take over their collection on a commission, they negotiated hard to get a discount on this commission amount. Their line of argument was “If I were to hand over the amount you asked for as a commission on the collection, then we will not have any profit deriving from such collections.” They failed to completely understand that in fact the monies they were claiming were only paper sales but to date nothing more. They wanted someone else to work for them yet they weren’t willing to pay a fair commission. I had a couple of questions following these comments:
    1. “Is there a provision for each financial year for bad debt? They replied, “No, we do not have any such policy. Why should we have this policy? If we have rendered our services or sold our product, we need to be paid for it and want our money.”
    2. “Did you have due diligence in place to check and evaluate credit worthiness before any credit approvals?” They said “No, we try to sell our services to everyone at 90-day credit terms.”

All in all, they do not evaluate who they are lending to, they do not have a credit policy in place, but they expect a collections agency to wave a magic wand and have all their money collected on their behalf. To top off the impossible they wanted someone else take the headaches, pay peanuts and still come out with a healthy profit!

This is precisely why I reiterate that the market in the Middle East is many years away from any mature international level.

  1. I also see companies reaching out when the situation has become extreme. They offer significant lines of credit at unbelievable terms and then watch helplessly as the overheads and fixed costs practically choke them. One case saw a client approaching me when he was owed more than 1 million AED. This tragedy unfolded at two levels –
    1. He was desperate to pick up work and hence offered 120 days (4 months) credit terms.
    2. Though he didn’t get paid for 4-5 months, he had to still maintain cash flow. By the end of the 4th month, he was left with nothing to pay salaries, utilities, rent etc. Thus, workers abandoned work, leading to further delay in order completion and invoicing for further payment.

With this vicious cycle of cash flow, he was rendered practically bankrupt. At this stage, he sought the help of our professional collection agency. However, here’s the catch – Bringing in a debt collection agency doesn’t mean that the problem will be resolved overnight. We need to first assess the genuine financial situation of the client and then suggest an appropriate course of action.

Actions that a collection agency can seek

We will first need to see what the intentions of the client are. This will help us choose an appropriate course of action

  1. If the client is genuinely facing hardships, they will be honest rather than employing delay tactics. A good way to resolve this is to wait for his financial situation to improve so that he can gather the means and settle amicably.
  2. If the client is unnecessarily delaying work or flat out denies the credit, then it is clear that he isn’t committed to repaying his debt.

Overall, it is a sloppy situation out there. There are scores of outrageous tales of woes I hear from both debtors and clients in this regard.

Some ways in which you can limit the extent of bad debts can be –

  1. Formulate a crystal clear credit policy applicable to all clients
  2. Be prepared to forego some business if client doesn’t meet credit criteria
  3. Be aware of market conditions and adapt accordingly

These pointers will ensure that you stay competitive and run a sustainable business. If you do not get paid, there is no point in selling is it? The amount of inward investment needed by UAE to sustain and grow is more than other markets thus credit management can no longer remain an option.

CMS Credit Management Services can help provide expert guidance on framing appropriate credit policies based on your line of business and cash flow needs. Our solutions can be easily integrated with your existing values and corporate practices to offer tremendous improvements in your order to cash cycle.


Please enter your comment!
Please enter your name here