Why are UAE businesses extending more trade credit?

Question

Accepted Answer

UAE Businesses Are Expanding Trade Credit to Remain Competitive and Foster Customer Relationships

UAE businesses are increasingly extending more trade credit as a strategic imperative to maintain competitiveness and nurture customer ties. This practice is becoming more prevalent, with nearly half of businesses reporting an increase in credit extensions recently. Credit sales now constitute a significant portion of business-to-business transactions, averaging 47% of the total. Offering greater payment flexibility is a key tactic to boost sales volumes and solidify relationships with clients.
The Competitive Imperative of Trade Credit

In the dynamic UAE business landscape, offering trade credit serves as a crucial differentiator. By providing customers with more flexible payment terms, companies can enhance their market position and attract a broader client base. This strategy directly addresses the need to remain competitive, especially when competitors may also be offering similar credit facilities. The ability to offer payment terms beyond immediate cash transactions allows businesses to secure larger deals and cater to the financial realities of their clients, thereby stimulating overall sales activity.
Supporting Sales and Strengthening Customer Bonds

The extension of trade credit is intrinsically linked to sales performance and the cultivation of robust customer relationships. When businesses provide clients with the ability to pay over time, it removes a significant barrier to purchase, thereby directly supporting increased sales. Furthermore, this financial accommodation demonstrates a commitment to the customer's success and fosters a sense of partnership. This enhanced payment flexibility can lead to greater customer loyalty and repeat business, as clients value the support and understanding provided by their suppliers.
Balancing Opportunity with Payment Risk

While the advantages of extended trade credit are clear, this practice also inherently introduces and amplifies payment risks. The Atradius Payment Practices Barometer highlights that despite the benefits of increased payment flexibility, persistent delays and growing concerns about defaults are placing considerable pressure on business liquidity and cash flow management. Approximately two out of every five business-to-business invoices are paid late, and a notable number of companies report a worsening rather than an improvement in payment behaviour. This situation is particularly acute in sectors like industrial and construction, which typically involve longer and more complex payment cycles.

Reading history

Hide →

This history is cleared when the page is closed.

Why are UAE businesses extending more trade credit?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

2

0

0

Share with friends