Cash flow remains a big issue for small firms in UAE

DUBAI: Though small businesses the world over face numerous problems, access to finance and cash flow may figure as the biggest challenges before them.

According to a report, more than 80 per cent of the cause behind the small businesses failing in the UAE is cash flow. Debt collection which is at the heart of cash flow continues to be a challenge for companies operating in the UAE, which ranks as one of the most difficult countries for collecting debt, just behind Saudi Arabia, in a recent poll conducted by international credit insurance company Euler Hermes.

Small to medium-sized enterprises (SMEs) comprise a big majority of the total enterprise population in the UAE. While securing timely payment from clients and customers is critical for businesses of all sizes, non-payment or late payment can be especially challenging for SMEs who may lack the free cash flow or finance facilities larger companies can draw upon to manage short-term cash flow issues, according to a report appeared in ameinfo.com.

Formal pursuit of debts in local court and arbitration forums can also be time-consuming and costly, with the prospects of successful enforcement far from guaranteed. The consequences of non-payment or late payment for an SME can, and often does, make its survival a growing concern, ameinfo.com quotes the report as saying.

Andrew Morris, Partner at Banks Legal, a UAE-based legal consulting firm, urges SMEs to continually review the different elements involved in contracting and credit control, from a legal perspective, to ensure they are putting themselves in the best position to mitigate exposure to bad debts.

Pre-contract/ contract formation

Assessing the creditworthiness of a client or customer and pre-contract can be invaluable in anticipating potential payment issues, even before a contract is signed. Similarly, understanding whether the client or customer has a track record of late payment can be helpful in mitigating this issue, whether in terms of controlling the credit extended or in terms of the protections that need to be built into your contract.

Contract management

It is often the case that contracts, once signed, are filed away in the bottom drawer and only referred to when things go wrong. Active contract management can go a long way to reducing the risk of a dispute arising and to limiting exposure to late payment and non-payment. Being clear on the contractual terms and conditions regarding delivery of goods and services, timing and method of payment and planning for these accordingly can help mitigate this issue to a good extent.

Identifying variations to the contract early, maintaining full and accurate records of all correspondence and documentation generated during the performance of the contract, including safe filing of original documents, etc should be given priority.

 

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