Prevention is better than cure

16 January 2006
Open any accounting textbook and somewhere it is likely to set out two clear conditions for revenue recognition: completion of the earnings process; and assurance of payment. But to Decol Debt Collections (DDC), a Dubai-based debt recovery and credit control agency, cash in the bank is king.

With more than AED 100 million ($27 million) of delinquent debt outstanding on its books, DCC sees some of the worst hard-luck cases in the Gulf. The company's offices are full of examples. The face of a woman with Western citizenship stares out from her passport, the only means of identification they can find. Total debts: AED 1.5 million ($410,000). Another passport, accompanied by bank statements an inch thick, shows a man who absconded with debts of AED 11.7 million ($3.2 million). Both have vanished.

UAE demographics are partly responsible. With only 750,000 nationals and a huge population of expatriate workers, most people are in the UAE to earn, not to spend. But Dubai's freewheeling market economy can present irresistible attractions to spendthrifts, and there are few financial safeguards.

'Banks fail to ask elementary questions about home-country addresses, parents' names, phone numbers,' says DDC partner John Ray. 'They should ask, 'Show me how you'll pay.' People who refuse don't get a line of credit. Just asking for information is a deterrent.'

The potential scale of the problem is huge. In the first half of 2005, the Dubai Department of Economic Development (DED) approved 5,475 business start-ups. And as trading entities proliferated, competition has heated up. To Ray and his colleague Calum McClure, no story is too far-fetched. Over an 18-month period, one local travel agency issued air tickets worth AED 150,000 ($41,000), without being paid for a single purchase. DDC inquired why the company had not simply cut lines of credit after 30 days, or even 60. 'They said, 'That's just hindsight. If I didn't provide the tickets, someone else would.' Then they expect us to recover the money in 24 hours,' McClure says.

Failure to check creditworthiness is rife. 'One [missed] payment can [destroy] profit margins,' says Ray. 'Conservatively speaking, 20 per cent of companies renege. Profit margins in IT, building and shipping are really very small.'

There have been improvements. The Central Bank of the UAE has made its register available to member institutions. Earlier this year, the Abu Dhabi Department of Economy and Planning and the Dubai Department of Economic Development are believed to have approved a UAE-wide credit bureau, with the US' Dun & Bradstreet acting as technical consultants.

Founded in 1994, DDC's services are 'both preventative and curative in nature'. With 105 associated offices worldwide, it has 1,700 registered UAE clients: the 'vast majority' of Dubai's international banks, blue-chip multinationals and many large, medium and small local enterprises.

It also represents three of the world's largest credit data agencies: Belgium-based TCM Group International; the American Collectors Association; and Global Credit Solutions of Australia. The network collectively services 105 countries for debt collection and provides credit profiles and reports in 170. A 'no recovery-no fee' policy prevents compounded client losses.

A DDC credit report provides information on a prospective trading partner's invoice payment history, any registered bad debts, invoices written off or registered court actions. Late invoice payment is permanently recorded on the company's global website.

One of DDC's bugbears is the issuance of post-dated cheques. 'Why are companies or individuals given access to supplies or services if they don't have the money to pay?' McClure asks. 'Why should the police force be used as a debt recovery company? Surely their job is to fight crime?'

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