Trade credit insurance increase Y-o-Y among the businesses in UAE

There has been a year-on-year increase in the number of businesses adopting trade credit insurance in the UAE, a recent survey report said.

The survey was done by Atradius Payment Practices Barometer Survey for the UAE, which was conducted in the first half of 2022, revealed that the majority of businesses polled cited the need to protect cash flow and minimise days sales outstanding (DSO) as primary reasons for taking out a policy.

Responses were collected from businesses across the UAE in agri-food, chemicals, consumer durables, electronics/ICT and steel/metals industries. Trade credit insurance protects the companies against the risk of its customers not paying the firm when trading within the UAE, Middle East, or other foreign markets.

In fact, 60% of businesses polled explained that liquidity issues were the primary reason for payment defaults. However, there was also an increase in the number of businesses choosing to use specific trade finance solutions to complement their credit insurance policy.

Despite this increase in the adoption of trade credit insurance, there was no year-on-year change in the total value of B2B sales made on credit, which remained at about half of all sales. Write-offs also held steady at 8% with no change year-on-year.

Businesses across the UAE reported different reasons for offering customer credit. These ranged from the desire to grow sales with existing customers in the agri-food industry, to the need to remain competitive within regional and international markets as indicated by respondents in the ICT industry.

Strategic Importance

The UAE has a strategically important position as the region’s commercial hub”, said Schuyler D’Souza, Managing Director Middle East at Atradius.

He explained: “Although there remains a widespread preference for cash, trade credit is used to drive sales across various sectors where businesses are competing in international markets. The more widespread use of trade credit insurance in the region is likely to reflect the development of more sophisticated credit management strategies. It is the indication of a maturing market and a further example of the importance of the nation’s commercial focus.”

Overall, companies in the UAE appeared upbeat about their business outlook. The survey reported an optimistic mood among interviewees, the majority of whom anticipate an improvement in customer payment practices over the coming year. Some 71% (across all industries) said they expect to increase the amount of B2B credit they trade over the coming months, reflecting anticipated growth in their market share.

There was also a widespread expectation that DSO would be kept under control. 53% of the total value of invoices is currently overdue, an improvement on the 60% reported in our last survey in 2021.

The exception to the positive outlook is the steel/metals industry, which has been impacted by geopolitical tensions and supply chain issues. In this year’s survey the industry reported a year-on-year increase in write offs; 12% of all B2B invoices this year compared to 9% last year. The sector also saw an increase in late payments; 49% up from 30% last year.