A common challenge associated with cash flow in both Oman and Bahrain is the high credit risk in most business organisations, as well as their project-based income, in economies that are vulnerable to fluctuations in oil prices, government expenditures, and delayed payments. For both small and large businesses, profitability is no longer the problem, but rather whether the money comes in on time for payments, for example, for salaries, payment of suppliers, fulfilment of obligations, as well as investments.
Structural features of Oman & Bahrain’s economies
Oman and Bahrain both have diversified economies and are indirectly affected by government expenditure priorities and industry cycles. If the public expenditure cycle decelerates, if banks reduce their loan advances, or if the notional sectors face challenges, the spillover effect will emerge in the form of delayed payments and increased receivables.
Some of the factors that contribute to the periodic strain on the company’s cash flow are:
- High dependence on B2B business segments with longer payment cycles as opposed to retail models.
- Involvement with sectors such as construction, infrastructure, and services, which can be affected by project delays and variations.
- Using credit terms as a means of doing business, as a result of which many companies have significant receivables balances.
In such a scenario, if the payments on a few large invoices from suppliers become delayed, the otherwise healthy business could be affected. This is because the mid-sized suppliers find themselves downstream in the value chain.
Cash Flow Problems
Payment culture and receivable practices
Within Oman and Bahrain, credit terms may also be negotiable and may even extend past the written conditions in a contract due to normal delays. In these countries, a lot of companies show leniency to foster a positive image in hopes of winning repeat business.
Typical problems in accounts receivable management are:
- Credit control weaknesses in the onboarding process, such as insufficient evaluation for risk or defined boundaries regarding exposure.
- Inconsistent follow-through for past due invoices, with reminders based on an inconsistent system rather than an organised process.
- Very limited segmentation, which means they treat customers the same, with no differentiation based on risk, value, or payments.
“It will be paid eventually,” such is the kind of culture that develops over time, pushing the working capital risk down the value chain to suppliers and smaller firms.
Project-based work and concentration risk
Many organisations in Oman and Bahrain rely heavily on one or more flagship projects. Often, this risk of concentration is more visible in the construction, engineering, logistics, facilities management, or specialised services sectors, where contracts can potentially be sizeable, complex, or heavily driven by milestones.
Cash flow problems may arise when:
- The achievement of milestones gets postponed or contested, hence delaying certification as well as payment.
- Variations and changes are not documented, justifying the customer’s delay in finalising the payment.
- Delays in projects by large customers have subsequent effects on subcontractors, suppliers, and employees.
For instance, in these situations, even if the business is lucrative and busy, its cash gets stuck in work in progress or in disputed accounts instead of circulating back into the business.
Financing constraints and leverage
Facilities of bank financing, overdrafts, and trade facilities could cushion such cash flow gaps, but not all businesses in Oman and Bahrain can obtain access to and effectively utilise such tools. Smaller firms, newer companies, or those with weaker financial reporting may struggle to secure adequate facilities on reasonable terms.
This poses some problems:
- Businesses overly rely on supplier credit and informal borrowing to cover shortfalls.
- The existing bank facilities are used to plug chronic gaps rather than manage short-term working capital, causing persistent over-leverage.
- Interest and fees then further squeeze margins, leaving less room to absorb shocks when payments start to slip.
Even routine delays in payment can rapidly escalate into serious liquidity stress when financing is tight and internal cash generation becomes unstable.
Internal processes and financial discipline
Problems with cash flow are seldom caused solely by one issue, as they can be compounded internally. Most organisations concentrate their efforts on the growth of their business and winning contracts, while often not giving equal importance to the associated timing of cash inflow.
The internal gaps that exist in the normal:
- Poor cash flow forecasting with inadequate scenario planning in case of payment delays or cost overruns.
- A weak linkage between sales, operations, and financials, resulting in a commitment to terms that are inconsistent with a company’s working capital capacity.
- Ineffective visibility of aged outstanding payments, hence delayed action on deteriorating accounts.
The improvement of these fields enables Oman and Bahrain businesses to better predict crunch times and be proactive when risks occur.
The role of overdue debts and non-performing receivables
Overdue receivables and bad debts are often at the root of cash flow problems. When substantial amounts of revenue are tied up in disputed or non-performing receivables, it amounts to the company extending loans to its customers.
Consequences include:
- Chronic lack of liquidity despite strong apparent revenue and profit.
- Increasing borrowing requirements due to filling funding gaps using borrowed funds.
- Higher risk of business and projects not proceeding due to delayed cash flow affecting salaries and payments to suppliers.
What is needed in addressing such is more than the need for additional reminders, but rather a comprehensive credit strategy that harmonises commercial, legal, and operational capabilities.
AlWasl helps businesses facing cash flow stress
AlWasl is specifically focused on assisting organisations operating in the regions of Oman and Bahrain to improve their cash flow by enabling the recovery of arrears due to them on a timely and efficient basis. AlWasl has a presence in the region and has worked with a number of industries such as banking, finance, telecommunication, and corporate services.
For businesses facing usual cash flow problems, AlWasl can:
- Take over difficult, aged, or high-volume overdue accounts and use specialised recovery tactics based on debtor and industry profiles.
- Allow for skip tracing and field investigation when debtors have become difficult to contact, giving “lost” accounts a second chance at being made proactive.
- Offer a clear dashboard system for monitoring financing recoveries, trend analysis, and customising internal credit terms on finance risk management information.
Through collaboration with AlWasl, companies in Oman and Bahrain will be able to shift focus from mere firefighting to proactively managing their cash flow through the optimal conversion of receivables into steady and constant streams of funds.
FAQs
1. Why do companies that are profitable in Oman and Bahrain have problems with cash flow situations?
Because profits, in terms, are found in areas such as, for example, receivables, work in process, or disputed accounts, while funds for immediate current expenditures are tied up or delayed.
2. Are long payment terms that cause cash flow problems?
They are a crucial component, but the problem is a combination of terms that are too long, follow-through that is not strong enough, and focus on a few large accounts/projects.
3. In what way would improved credit management result in improved cash flow management?
Enhanced onboarding procedures, tougher collections, and a defined boundary reduce delinquent accounts, collection cycles, and working capital volatility.
4. In what ways does AlWasl assist firms that face cash flow difficulties?
AlWasl assists in recovering late payments, tracing absconding debtors, and getting an overview of receivables so that companies can break the barriers to growth by releasing locked capital.
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