Late Payments = Frustrated Industry
(1 minute read)
Late payments across the board are on the rise in Dubai and the UAE which is putting strain on not just production companies but almost every sector which is inhibiting their ability to finish projects, hire and expand. A major factor causing this to happen is liquidity tightening up due to falling oil prices. Why is this important... Well in a region where oil is the economy's main export, oil prices falling means everyone pays the price. 2016 and the first half of 2017 have been tumultuous year's for trade and because of that companies are having to wait twice as long for payments compared to the year earlier.
According to Credit Insurer, Coface - this past year has seen; Construction companies waiting 123 days longer that the contracted payment schedule. General trading delaying payments by 47 days and the food sector by 34 days. They've also reported that approx 800 companies in Dubai alone have been flagged as "runaways" fleeing the country due to not being able to pay their debts.
So what does this mean for production companies in Dubai? Well the ripple effect is real, both the agency & client side have been tightening budgets, looking for lower cost solutions and delaying compensation for as long as possible. Overall the industry is going through a rocky phase just as we've seen before, such as during the real estate crash of 2008.
Solution? Escrow is one, knowing your money is ready and will be paid on time is a key to growth and mitigating risk for both the contractor and client. The trick is to find a client willing to hold their money in escrow as the project is commenced. Incentives are another, such as; tier'd discount's for the client based on an early payment schedule. For example if you are to receive payment before the due date the client receive's an incentive. If your margins are healthy this should definitely be a consideration for all contractors alike.
Lastly in an economy basing its livelihood on primitive technology such as fossil fuels, maybe its best that this "next generation economy" start looking toward the future at alternate energy sources as primary export, it could be the solution to not just the overall global climate problem but it might just cause a harmonious flow and balance of payments, I'm sure all contractors would just love that :) Is the sun our answer to cash flow harmony? Possibly a form of centralized blockchain all clients must abide to that works in tandem with Government regulation?