As the global health pandemic of COVID-19 impacts businesses and clients alike, many businesses are implementing payment arrangements or schedules as part of their contracts. By including a payment arrangement in your contract, you are setting the boundaries from the start and lowering the risk of clients defaulting on payments.
Set a reasonable payment schedule
In the Middle East, a payment contract needs to comply with the laws of the UAE, or the Dubai International Financial Centre (DIFC), if the parties opt-in to its jurisdiction. Whilst it is reportedly common for clients to push for a payment schedule with a three-to six-month delay, a business startup in Dubai can push for invoices to be settled within a different time frame.
Those Dubai businesses that highly value cash flow even offer their clients discounts if they settle invoices within a fortnight. Other contractors insist on securing some payment before the supply, with a demand for a partial upfront payment.
Make sure the payment contract is signed by both supplier and client
To ensure the contract is considered valid, it must be signed by both the Dubai business setup supplier and the client. Make sure your terms expressly mention the payment period, and a signed copy is sent electronically, and possibly also delivered by hand as well.
Vet a client for creditworthiness before engaging with them
When taking on a new client, it is well worth a newly setup business’s time to conduct some research into their background. By checking up on their portfolio of clients or going through referrals and testimonials by other stakeholders, you can gauge whether the company is legitimate.
It is useful to be familiar with the management structure of the company, and know to whom you can escalate a payment issue if it is severe or longstanding. Also, given the possibility of bankruptcy, consider whether your newly-established business startup in Dubai can withstand writing off a debt if the client claims insolvency.
Consider your response to a request for discounts
It is not uncommon for clients of business startups in Dubai to ask for discounts when they are unable to settle an invoice. Whilst a full payment is your right, some suppliers may wish to extend a favour to a good or loyal client. In that case, it is important to establish some rules. For instance, the payment of the discounted dues needs to be cleared on an ASAP basis. Alternatively, you can agree to a staggered-payment schedule to avoid a financial loss, whilst still giving the client time.
Written by Decisive Zone, a business setup company helping you find the best-suited solution when establishing a company in UAE. Decisive Zone will advise you on the corporate structure and jurisdiction to choose from, while covering all technical, administrative and financial aspects of UAE business setup.