Collecting a Debt in Mexico: Six Questions

You may have or have had a client in Mexico that does not pay, and eventually you end up or have ended up with an international debt in Mexico.

To determine your chances to successfully collect the debt in Mexico, you should ask yourself the following six questions.

Is your debt in Mexico business or consumer related?

The first questions is whether your debt in Mexico is business or consumer related. Business related debts often have more likelihood to receive a positive response (full or partial payment, settlement or a payment plan) than consumer debts. For international consumer debts, one needs to be realistic as to possibilities to collect, as the response rate is generally low.

How old is the debt in Mexico?

debt collection MexicoThe age of the debt is very important. Being on top of collections in Mexico, and showing that towards your debtors, is vital to be taken seriously in your attempts to collect a debt. The older overdue invoices are, the more difficult it becomes to collect in Mexico, as the same goes everywhere. Mexico’s period of limitation is five years. After five years, it is legally very hard if not impossible to still collect. But any outstanding invoice older than a year will face though times.

What is the size of the debt in Mexico?

How much does your debtor in Mexico owe you? How much are we trying to collect? Don’t spend too much time on the smaller amounts, focus on the mid-size amounts, and be realistic about collection possibilities regarding the bigger amounts.

Can we contact or locate your debtor in Mexico?

Another essential question is: do you have, up to date, contact information of your debtor in Mexico, so that he or she can be approached or located? Essential information includes: full company name (including the legal name how the company is constituted in Mexico) or full name of the person (including second or more first names and second last name!), full address details, telephone numbers, cell phone numbers, e-mail addresses and Social Media profile links. It is important to keep such information up to date during the whole commercial or consumer relationship, as it may turn out to be vital once payment problems show up later on.

Do you have the documentation to support the debt?

collecting a debt in MexicoImportant to make a strong case towards your debtor, and to show leverage to start legal actions in Mexico against your debtor to legally enforce payment of overdue invoices or a contractually agreed payment, is to have on file the documentation to support your claim in Mexico. Supporting documentation regarding the debt may consist of contracts, invoices, order forms, order confirmations, debt acknowledgement, and (email) correspondence about the outstanding invoices. Note: because of the complexity (or ineffectiveness, you may choose yourself how to define it properly!) and costs of legal proceedings in Mexico, it is highly unlikely you may ever end up suing a debtor in Mexico, unless you handle the file as a matter of principle and / or the claim is really – I mean, really – substantial; not just a couple of tens of thousands of dollars. Click on the following links for more info on legal in Mexico or Latin America.

What is the reason the debtor in Mexico is not paying?

Last but not least: why is your debtor in Mexico not paying the overdue invoices? Did your debtor indicate financial problems? Or is the debt, to your knowledge, disputed by your debtor? This helps guiding debt collection in Mexico towards attempts to fully collect, look for a settlement or payment plan, or, which can sometimes just be economically the best option, choose to recommend you to write the debt off (and stop spending more time or money on something which is practically impossible to collect).

In order to determine chances for success in collecting a debt in Mexico, we suggest to ask yourself if the debt is business or consumer related, how old the debt is, what the size of the debt is, if you possess up to date contact details of the debtor in Mexico, if you have on file the documentation to support your claim, and what the reason is or may be your debtor in Mexico is not paying.

If you have an outstanding claim on a debtor in Mexico, or if you have been trying to collect a debt in Mexico, contact us! Please visit our webpage, and follow us on Linked-In and on Twitter.

To participate in conversations about international debt collection in Mexico and Latin America please join the Linked-In Group Debt Collection Latin America.

 

Debt Collection in Latin America: Effects of Currency Devaluation

150913 OM_LatinAmer_Outlook_640x360-640x360In recent weeks, under the influence of international and local economic trends, several of Latin America’s currencies have devaluated substantially as against the US Dollar. Take the Brazilian Real: did you still get about 3 Reais for a Dollar, today, September 14, it is almost 4 Reais for a Dollar.

The Mexican Peso shows a similar trend: mids of June, it was about 15.30 Pesos for a Dollar, whereas at the end of August the exchange rate even exceeded 17 Pesos for a Dollar.

It is not only hurting trade, it also affects debt collection in Latin America, from individuals and businesses alike. Here are five negative effects of currency devaluation on collections in Latin America.

  1. The first effect might be the most obvious: existing foreign debt for Latin American Individuals and businesses, often incurred in US Dollars, become more expensive as the amount of the debt converted to the local currency, i.e. Mexican Peso in Mexico, and Brazilian Real in Brazil, increases. It means that individuals and business may not be able to anymore pay at the same pace and in the same quantities.
  1. A second effect is especially for those companies that primarily do business abroad and invoices are predominantly in US Dollar or other foreign currencies: individuals and business may not be able anymore to pay (all) due invoices, which as a result become overdue, and hence contribute to an increase in outstanding foreign debt.
  1. A popular economic tool for governments in Latin America is, in times of pressure on currency, and in an attempt to protect national economies and currencies, to introduce foreign currency controls, putting up hurdles for local individuals and businesses to buy foreign currencies like the US Dollar. This makes it more complicated, and more costly, to pay foreign invoices and debt, causing (a) delays in payment of, and (b) increase of outstanding foreign debt. Please check out some of our previous posts about Currency Exchange Controls. Some of the most notorious examples in Latin America of effects are seen in Venezuela, Argentina and Brazil.
  1. As soon as individuals and businesses cannot pay debts and invoices become overdue, and individuals and businesses in Latin America start to increasingly default, there will be a pressure on the commercial relationship between individuals and businesses, and business relationships and international prestige will be negatively affected.
  1. If Latin American individuals and businesses cannot pay debts anymore or it becomes harder to collect, credit insurance companies and foreign lenders might become more conservative as to respectively insuring and lending against business in Latin America, which negatively affects trade with Latin America and economic growth and business activities.

150913 Money_Transfer_-_G_2163621cIronically, these effects might increase international debt collection business in Latin America. However, on the other hand, it will become harder to actually successfully collect outstanding debts in Latin America become of less resources and more obstacles to pay.

If you are interested in learning more on the subject of currency politics and debt collection in Latin America please connect with Cobroamericas on Linked-In or follow us on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

Debt Collection in Mexico: Six Items on the Checklist for Foreigners

141206 Mexico Debt Collection 3Some foreigners who claim unpaid invoices or overdue debt in Mexico may see debt collection in Mexico as complicated, impractical or even impossible.

Others, on the other hand, may underestimate the challenges one may encounter as they compare to the relative easiness and straightforwardness of collecting in their own countries.

The truth lays, as so often, somewhere in the middle. It is perfectly possible to collect debt in Mexico, but it is fundamental to understand the country’s particular context and circumstances for debt collection.

Here is a checklist every foreigner should use as a framework when looking for debt collection in Mexico and to properly manage expectations.

Size of the claim

At the end of the day, it is all a numbers game. How much are you owed and what would be the costs of claiming and collecting it? Collections in Mexico can be expensive (especially if you go legal), time consuming, and from slow to very slow. Make sure you take a realistic approach – from an economic perspective – as to what you may expect financially from debt collection in Mexico, if time and money invested are worth it, and how far you will take it.

Nature of the claim

Are you claiming from a company or an individual? Does your claim consist of overdue invoices based on a commercial transaction or are you looking for repayment of a loan? It can make a huge difference – speaking about chances for success – whether your debtor is a company or an individual, whether you are claiming payment of overdue invoices or an outstanding loan. Legal circumstances and financial situation of your debtor make or break potential success of your case.

Quality of the claim

Key for success of debt collection in Mexico is how “clean” or complete your file is. Contracts, order forms, order and delivery confirmations, invoices, (email) correspondence, contact details of your debtor, address details, age of the outstanding balance, it is all fundamental for the success rates of debt collection in Mexico. If you file is complete, it will no doubt increase likelihood of success. Be realistic in expectations management and as a rule of thumb, just do not waste your money and time on even considering going legal if your file lacks supporting documentation for the claim.

Leverage

Use the leverage that you may have. If your debtor is a company who has taken products or services from you, and there might be a commercial interest to (eventually) continue buying your products or using your services, use that leverage to enforce an amicable solution, like a payment plan with monthly instalments, a settlement payment or otherwise monetary or material compensation. If your debtor is an individual, although probably using leverage might be less straightforward, he or she might want to come back and again buy products or continue education (colleges, universities), or will need a clean credit history. When using your leverage it is important that you show flexibility and approach the situation with a solution-minded attitude.

Network

If you look for debt collection in Mexico, use your network. Directly, if you have your contacts at agencies, law firms or representatives, or indirectly, referrals from business relationships or companies that do business in Mexico, businesses that are operating in the same markets and may have run into similar issues. From personal experience, I cannot stress how important it is to work on the basis of referrals in Mexico, more than in many other countries I am familiar with.

Location

And finally, the location. Mexico is a big country with highly developed urban areas (Mexico City, Monterrey, and Puebla, for example) and on the opposite, professionally speaking, highly remote places. And unfortunately, some areas of Mexico have been hit heavily by political or societal instability. In principle there should be no problems to pursue your debt collection case in Mexico’s urban areas. Trying to collect in more remote areas may be challenging or in worst case, practically impossible. And sadly enough, be aware that some of your debtors (or clients) might be hit by the issues the country is nowadays facing.

When looking for debt collection in Mexico foreigner should have the following on their checklist: size of the claim, nature of the claim, quality of the claim, leverage, network and location.

These aspects determine the chances for succes and are the basis for proper expectation management.

If you are interested in learning more on the subject of debt collection in Mexico please connect on Linked-In or follow me on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

Legal Proceedings: Enforcing US Judgments in Mexico

140915 Enforcing Foreign Legal Ruling in Mexico 2This article focuses on legal judgments obtained in the US for which enforcement is sought in Mexico. Although the situation is specific there may be similarities with other countries in the region or anywhere else in the world.

I have got the question a couple of times over the last few weeks. Are judgments obtained in the US enforceable in Mexico?

Well, not directly. But yes, if confirmed by a Mexican court, in principle US legal judgments can be enforced and executed in Mexico.

Mexican law provides for Mexican courts to recognize and enforce US judgments in Mexico (based on the North American Free Trade Agreement). However, there is no treaty in place between the US and Mexico as to establish the legal situation of judgments between the two countries. This means that the claimant in that respect fully depends on Mexican law. Mexican courts can recognize US judgments but, legally spoken, they are not obliged to do so.

In order to enforce a US judgment in Mexico the applicable court in the US will have to issue a rogatory letter to the applicable court in the Mexican state (or the Federal District, as applicable) in which debtor resides. The letter must rule out appeal. Also, the debtor must have been personally served with the summon and complaint according to US law. Then the domestication proceedings start, in which the file will need to be translated to Spanish, and then the case is officially filed with the Mexican court. Provided that the Mexican court indeed recognizes the US judgment, all possibilities of enforcements as would otherwise apply to a full Mexican case will apply.

Subsequently, the success of, and decision to proceed to, enforcement and execution of the judgment in Mexico depends heavily on the circumstances: the size of the claim, does debtor have income or assets and will he or she be able to pay; and the location and background of the debtor (which may determine the willingness or not of a bailiff to execute the judgment).

If you are interested in learning more on topics about legal proceedings in international debt collection connect on Linked-In or follow me on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.