Welcome back to Lawgical, where we untangle the legal knots so that you do not have to. I am Ludmila Yamalova, a U.S.-qualified lawyer based in Dubai. In each episode, we break down complex law into clear, practical insights that you can actually understand and use.
If you have ever waited too long to get paid, wondered whether you can finance your receivables, or advised a client on creative liquidity solutions, this episode is for you. In other words, this should be of interest to business owners, freelancers, and any type of service providers.
Specifically, we will discuss the UAE’s laws on receivables.
What Is a Receivable?
If you have ever issued an invoice and waited for payment, congratulations — you are holding what is legally called a receivable. Receivables, or accounts receivable, are money owed to you by someone else, usually under a contract or invoice.
Think of it like this: You did the work, delivered the product, sent the invoice… but your client is still holding onto their wallet a little too tightly. That unpaid invoice is your receivable.
In legal and business terms, receivables are an asset of the company or business. They represent future cash that you are legally entitled to collect. It is like planting a tree today and waiting for the apples to drop — except sometimes, you might need to shake the tree… or hire a good lawyer to get paid.
Receivables could come from customers who bought a product or service on credit, tenants who owe you rent, or clients who are simply slow to pay their invoices.
Some common examples:
- A freelancer invoices a client with a 30-day payment term. During those 30 days, that invoice is a receivable.
- A construction firm completes a milestone and bills a developer, with payment due in 90 days.
- A supplier delivers goods to a distributor with a 60-day payment window. Until that money is paid, it sits as a receivable — technically yours, but not yet in your account.
For many businesses, receivables are one of their largest assets — and one of their biggest pain points. From personal experience running a law firm, I can confirm: it is certainly painful and challenging at times.
Why Do Receivables Matter?
Receivables are part of your financial health. If too many people owe you money for too long, your business can run out of cash — even if you are technically making sales. Receivables tie up capital, create cash flow gaps, delay growth, and can leave you juggling payroll, inventory, or loan repayments.
That is why businesses — especially in construction, services, and B2B supply — are turning to receivables financing as a way to unlock capital without taking on new debt.
What Can You Do With Receivables?
Receivables are not just numbers sitting on a spreadsheet — they can be used strategically.
Use as Collateral:
Receivables can secure loans or lines of credit. Banks may look at your receivables and think, “This business has money coming in eventually.” You might get approved for financing by pledging receivables as collateral — like saying, “I have a check in the mail. Can you spot me until it arrives?”
Sell Receivables (Factoring):
You can sell receivables to a third party, called a factor, often at a discount to get immediate cash. It is not full price, but it is cash now instead of maybe cash next quarter.
Example:
Your law firm invoices a client for AED 10,000. The client is taking their sweet time. Meanwhile, you need to pay staff and suppliers. You sell that receivable to someone else. Maybe you get AED 7,000 instead of AED 10,000, but it is money today.
The buyer takes on the risk and waits for the full AED 10,000. They paid AED 7,000 and may earn AED 3,000 in profit — if the client pays. That is how factoring works.
Forecasting Tool:
Receivables help predict cash flow. If you are owed AED 500,000 across 30 clients and you know when each is due, you can plan your expenses accordingly. It is like peeking into the financial future without needing a crystal ball.
Legal Leverage:
If receivables are not being paid, that is where lawyers come in — through demand letters, court claims, or arbitration, depending on the contract.
Receivables in the UAE: The Legal Framework
So what does the UAE say about all this?
Before 2021:
The UAE did not specifically address receivables. The Civil Code and Commercial Transactions Law mentioned assignments, but without enough clarity. Assignments were risky, expensive, and often blocked by anti-assignment clauses. Many relied on foreign laws or legal workarounds.
After 2021 — Game Changer:
In 2021, the UAE introduced Federal Law No. 16 of 2021 on Factoring and Transfer of Receivables — the first specific law to define and regulate receivables as financial instruments.
It aligned the UAE with international norms and allowed:
- Factoring
- Invoice discounting
- Assignments and sales of receivables
Let us explore the most relevant articles of this law.
Article 4 – No Debtor Notification Required
You can assign receivables without notifying the debtor. This allows financing arrangements to remain private.
Example:
You sell AED 1 million in receivables to a bank. Your customer does not know. They simply pay as usual. Your reputation remains intact.
This is crucial for businesses that operate on 60 or 90-day payment terms — common in the UAE — and need capital during that waiting period.
Article 5.2 – Anti-Assignment Clauses Are Not Enforceable
Many contracts contain clauses that forbid assignment to third parties — but under this law, such clauses are not enforceable with respect to receivables.
Example:
You are a logistics provider. Your contract says “no assignments allowed.” You assign anyway. The transfer stands. If your client objects, you can challenge them — successfully — under the law.
Article 6 – Collateral Transfers Automatically
If a receivable is backed by a lien, bond, or insurance, those rights transfer with the receivable automatically — no extra paperwork needed.
Example:
A contractor assigns a receivable tied to a performance bond. The bond rights follow along with the receivable.
Article 9 – Freedom to Structure Terms
This article is particularly useful for dealmakers and startups. You can:
- Sell at a discount
- Add grace periods
- Exclude liability
Example:
A startup sells AED 500,000 in receivables at a 10% discount with a 60-day repayment window. Fully valid, if agreed upon.
The law encourages flexibility and creativity to structure deals that work for both sides.
Article 10 – Disclosures and Declarations
When selling receivables, you must confirm that:
- You have the right to assign it
- It has not already been transferred
- The debtor cannot raise objections
You may also disclaim any repayment guarantee.
Example:
You sell a receivable for AED 100,000, knowing the client is unreliable. You sell it for AED 70,000 and clearly disclaim any guarantee of repayment. That sale remains valid and enforceable under the law.
Final Thoughts
This law is a game changer for anyone running a business in the UAE. It gives you legal tools to unlock your revenue without waiting 60, 90, or 120 days.
Example:
A construction company awaiting a multimillion-dirham payment assigns the receivable to a bank and gets funded the next day — keeping the project alive.
The UAE’s receivables law is modern, practical, and empowering. It transforms unpaid invoices into real-time cash flow. But do remember: just because the law exists does not mean every transaction is risk-free. It must still be documented, structured, and legally sound.
That is it for today’s episode of Lawgical with Ludmila. If you found this episode useful and like what we do, visit our website: lylawyers.com. You can also find us on Apple Podcasts and Spotify. And for the full experience, watch our video podcast on YouTube.
Until next time — stay informed, stay safe, and keep things Lawgical.