Saudi Arabia and the UAE are ranked as the two most complex countries in the world for international debt collection, according to Euler Hermes’ analysis of debt collection procedures in 50 countries worldwide.
The global credit insurer said that in these two countries, the tough debt collection conditions are due to a large number of factors: from the poor speed, high cost and general uncertainty of local legal action in Saudi Arabia to the complexity of the legal framework and the lack of independence and reliability of the courts in the UAE.
As with all GCC states, late payment is common in Saudi Arabia. Though the law does not regulate late payment, late-payment interest is prohibited and collection costs cannot be recovered from the debtor unless a specific agreement has been concluded by the parties.
As a result, debtors will often try to negotiate for discounts in exchange for prompt payment.
Local legal action is very slow, costly and uncertain overall, since Saudi courts are not bound by a system of precedent and have considerable discretion in applying Shariah principles to specific circumstances.
In addition, several weeks or months may separate each hearing, and the courts hardly abide by time-management requirements.
Insolvency laws in the Middle East are not as sophisticated as in other regions, and the non-existent company-rescue culture in Saudi Arabia illustrates this point.
In the UAE, while the payment behaviour of large domestic companies is generally good, dealing with small- and medium-sized businesses may represent a significant risk of non-payment. Since insolvent debtors may be sentenced to prison terms, their tendency to disappear when things turn sour is significant. The legal framework is complex and the courts tend to lack independency and reliability, and procedural delays and costs may be prohibitive.
Insolvency law does not provide much support when it comes to debt recovery. A debt renegotiation mechanism has been put in place but, in practice, it remains largely untested, and liquidation prevails, thus leaving no chances of recovery to the creditors.
Sweden, Germany, and Ireland are ranked highest as the easiest countries in which to collect a debt, according to Euler Hermes. International debt collection is three times more complex in Saudi Arabia than in Sweden.
The rankings are based on the Euler Hermes Collection Complexity Score which ranges from 0 (least complex) to 100 (most complex). M