Payment Terms
Whereas vendor contracts are standard procedure in other parts of the world, the results of the Hotelier Middle East Supplier Survey 2015 show that almost a third of suppliers (31.82%) work with hotels that don’t enforce contracts.
While for 36.36% of respondents, hotels that enforce contracts only make up between 1-20% of their business.
Interestingly, however, 81.82% of respondents were of the opinion that hotels should enforce contracts, while 18.18% did not believe it was necessary.
It’s a sentiment expressed by some of the suppliers Hotelier spoke to. Rational’s Parke-Davis says: “We feel in this region there is no requirement to force anything with clients or customers.
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“Show your morals and professionalism in delivering what you promise or paying your debtors on time; this is enough to show what type of company you are.
“The only benefit of a vendor contract is that you are tied together, if you are doing the right things your relationship will be close anyway.”
Food Source general manager Sacha Schatt adds that sometimes it doesn’t make a difference whether a hotel has a contract with a supplier or not. “We have customers where we don’t have a contract and we’ve been working with them for 10 years; and then we have contracts with customers and no payments or they are not paying as much as they should.
“I think they have to be enforced by the hotel group, but for example, you can have a contract from the corporate office and at the end of the day it’s completely up to the chef, or the purchasing department. So it helps if you have a contract and that the corporate office is supporting you, but it doesn’t necessarily mean they will buy your products,” he says.
With contracts still not the status quo in the Middle East, more than 63% of respondents said it is taking longer than ever to receive payments from hotels. That said, some suppliers are of the opinion that contracts do very little when it comes to enforcing payment terms.
Sparrow International’s Hijazi says: “[It is] a UAE culture, where there are lax laws and if you don’t get a payment, it’s an extremely long, tedious, annoying process to get your money from whoever hasn’t paid you yet. It’s not new — it’s been ongoing for a long time; less so in hotels to be honest. Usually you sign contracts with payment terms of 60-days post-delivery by hotels, whereas small coffee shops and individuals tend to have payment issues.”
Hijazi also said the length of legal proceedings makes suppliers reconsider filing any legal action against creditors. He explains: “Even if you’re legally transparent and everything is fine, if you open a court case, it can take years and usually you lose more money than you recover. So you really can’t do much about it. The only flip side is that the person who doesn’t want to pay is only damaging his own reputation, and other suppliers refuse to work with him.”
“But legally there’s not much you can do here. In other countries, for example, you have the small claims court. Here there is no small court for financial disputes, you have to go to the judge and it takes a long time to get sorted,” he adds.
The survey showed that a large percentage of respondents were owed money from hotels for products or services (73.68%), with 72.22% saying they would definitely receive the payments, while 27.78% were confident of receiving the payments they were due.
Two of the companies that responded, however, feared there was a slight chance they would have to close down if outstanding payments were not received.
In general, suppliers seem confident in the growth of the industry, with 31.82% under the impression that the luxury market offers the most opportunity for growth, followed by 22.73% in favour of resorts. Only 9.09% of respondents believe the economy segment offers opportunities for growth, which is in contrast to the growing number of mid-market hotels being signed — with current numbers standing at more than 50, according to Dubai Department of Tourism and Commerce Marketing.
La Marquise marketing manager Olga Mirtova is among those gearing up for the rise of the mid-market. She says: “I would anticipate three- and four-star hotel growth. Percentage-wise, necessity-wise, I believe the demand is huge and I believe hoteliers understand that market trend, and will invest in more hotels.”
More than 60% of suppliers continue to believe the UAE poses the biggest opportunity for them, followed by Saudi Arabia at 31.82% and Qatar at 4.55%. Whether suppliers will cotton on to the industry’s changing dynamic and pay more attention to the mid-market is something time will tell. Hotelier will be interested to see how perceptions may change next year.
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