Cashflow woes on horizon for UAE companies hit by Hormuz crisis

Cashflow woes on horizon for UAE companies hit by Hormuz crisis

Cargo is being left thousands of miles from its intended destination, resulting in delayed payments from customers who have yet to receive their goods. Companies trying to transport their goods still have to pay their own suppliers and absorb much higher freight costs to reroute shipments.

“Covering accounts receivables is becoming a huge concern for companies right now,” said Aurélien Paradis, CEO of AU Group MEA, a credit insurance brokerage.

“We are receiving a lot of calls from companies that want to get insured because they know what will come next, unfortunately. The first thing [customers] do when they face issues is delay payment to suppliers,” he told AGBI.

Paradis said credit insurance premiums – used when businesses want to protect themselves against financial loss if customers fail to pay for goods – are up 10 to 20 percent since the conflict began.

Companies that import goods for resale – a important strand of UAE business supported by the country’s location and trade infrastructure – are particularly exposed to late payments since invoices can make up a large share of their assets.

Receivables – money due the company for products or services it has already delivered – can represent more than half of total assets, according to Paradis. Non-payment by a major client can push companies into bankruptcy, he warned.

“The real problem is not just the supply, it’s cashflow,” said Saleem Ahmed, CEO of Dahbashi Group, a UAE-based supplier of heavy equipment spare parts and services.

“Until the situation eases, you have to find ways and means to keep yourself afloat, pay your suppliers, and deal with the people who can pay you.” 

The UAE central bank has moved to support liquidity and credit, allowing banks to delay classifying corporate loans hit by “extraordinary circumstances” while urging continued lending to customers.