Saudi-Arabia collection profile

 

Saudi Arabia
       

Saudi Arabia

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2014: 26/189 countries
2013: 22/189 countries
 
 


Complexity of collecting debt:

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Executive summary

  • As with all GCC states, late payment is common in Saudi Arabia. In practice, the law does not regulate late payment, whilst late payment interest are simply 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 discounts of debts in exchange for prompt payment
  • Local legal action is overall very slow, costly and uncertain because the courts are not bound by a system of precedent and have considerable discretion in applying Shari'ah 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 of the world and the inexistent company rescue culture in Saudi Arabia illustrates this tendency.
 
General Information GENERAL INFORMATION arrow-transparent
 
Collection Practices COLLECTION PRACTICES arrow-transparent
Court Proceedings Court PROCEEDINGS arrow-transparent
 
Insolvency Proceedings INSOLVENCY PROCEEDINGS arrow-transparent
 
General Information

GENERAL INFORMATION

Days Sales Outstanding (DSO)

Payment terms are 30 days on average but large secured contracts may reach 60 days whilst certain sectors would normally work on a 120 days basis. Having said this, as with all GCC states, late payment is common in Saudi Arabia where administrative obstacles are often put in the way of prompt payment (such as requirements for original invoices bearing the company stamp or multiple levels of approval of invoices within the debtor's organisation). As a result, payments tend to occur within 90 days on average and debtors will often try to negotiate discounts of debts in exchange for prompt payment. Constant follow up by creditors and reliance on personal relationships are thus required to manage cash flow.

 

Late payment interest

The very notion of interest is contrary to Islamic law (Shari'ah). Therefore, interest for late payment is simply prohibited in Saudi Arabia and is not recoverable.

Unless otherwise agreed, legal and other costs relating to enforcement proceedings are generally not recoverable in Saudi Arabia. Such clauses need to be carefully drafted to be enforceable under Shari'ah.

 
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collection practice

COLLECTIONS PRACTICES

Orchestrated negotiation first

Assuming that there is no genuine dispute concerning the debt, negotiation and follow up work conducted by local specialists can be an effective means of achieving payment without going to court. When negotiating discounts in exchange for prompt payment, care should be taken to ensure that such discounts are conditional on payment being effectively made on time, otherwise the full liability will remain enforceable.

 
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Court Proceeding

COURT PROCEEDINGS

Saudi Arabia is a Sunni Islamic State based on Shari’ah law. Significantly, unlike other GCC states, Saudi Arabia does not have a civil code that states the rights and obligations governing relationships between parties in their commercial dealings. As such, such rights and obligations are determined by reference to Shari'ah directly. In particular, the law of Saudi Arabia is derived from the major Islamic religious texts (the Qu'ran and the Sunnah) and to a lesser extent, interpretations and subsequent writings concerning those texts. Four schools of jurisprudence can be applied to decide cases before the courts, however the most dominant is the Hanbali school. By this school, parties to commercial contracts will generally be held to the terms that they have agreed, unless such terms offend Shari'ah principles. The legal system is built upon Shari’ah Courts acting in first instance, Courts of Cassation and a Supreme Judicial Council. Since 2007, reforms have established a Supreme Court as well as a specialised court (the Board of Grievances) dealing with governement-related claims as well as with specific commercial, administrative, insurance and employment disputes. Having said this, the Board soon ought to lose competence to deal with commercial matters, which shoudl fall under the jurisdiction of Shari’ah Courts. Local legal action is overall very slow, costly and uncertain because the courts are not bound by a system of precedent and have considerable discretion in applying Shari'ah principles to specific circumstances.

Formal litigation should only be considered once all amicable settlement opportunities have been exhausted. The creditor would file a claim with the Board of Grievances, which would then invite the parties to a hearing and consider the parties arguments and evidence prior to taking a decision. There are no fast track proceedings for general debts but, where cheques have bounced, a fast track procedure is available through the Enforcement Law. In this case, creditors can apply directly to the enforcement judge for a remedy without having to file a claim seeking a decision on the merits of the dispute in the Board of Grievances.

 
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insolvency Proceeding

INSOLVENCY PROCEEDINGS

 

 
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