Five clever tips for successful debt collection in Mexico

Debt collection in Mexico is possible like in many places around the world. Just in case you wondered. If you struggled recovering money from Mexican businesses before, maybe you know what we are going to cover. If you don’t, read on and take notes. It means your collection agent or attorney didn’t tell you about them. So, make sure you know these five tips for next time.

 

And use them.

 

We already mentioned that selling abroad is not the same thing as dealing with domestic buyers. It’s much more challenging. Only think about the legal system of another country! Phew! Not even your best local lawyer may know about it. That’s why you need a legal representative operating in that country. Above all, expert in commercial claims.

 

If you need pursuing debt collection in Mexico, finding a Mexican attorney willing to help is not enough either. You need a professional who knows the local commercial code and its technicalities.

 

Mexican Pesos

Together you can craft the most appropriate strategy to achieve your primary goal: recover your money.

 

Yet, you are not exempt from doing your own preliminary homework educating and preparing you for the worst case scenario. Assessing your credit risk.

 

Credit Risk Assessment

 

Apply the same general risk assessment for every market and customer. Start from writing down your credit policy if you don’t have one in place. Yet, for each market presents its own challenges and economic culture you must tinker it a bit. This process requires thorough analysis and a degree of adaptation.

 

You can’t expect to use the same commercial logic with importers in different countries. Less if they are in different continents.

 

Some information about Mexico

 

Mexico is a huge market, the 13th largest economy in the world. In 2017 OECD real GDP forecast is at 2,27%. The World Bank Group reports that in 2015 Mexico GDP was $1,144 billions.

 

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In the same year imports were about $395 billions. Of these, 51% originated from the United States and 15% from China. Then, Japan, South Korea, Germany, Italy and Malaysia.

 

Judiciary in Mexico

 

Despite some inefficiencies, Mexico has a modern legal and judicial system. This matches the country’s federal structure and is based on public and civil law. At the top stands the Supreme Court of Justice, the ultimate court of appeal. Here conflicts at all levels are resolved, including those of constitutional nature.

 

Mexican Supreme court image

Source Wikipedia

 

Next, the court of appeal of first instance is the Circuit Court. Then, courts split into district and federal or state courts where collection cases are filed.

 

In the World Bank Group Doing Business 2016 report, Mexico is 41th and has a Distance to Frontier (DTF) score of 67.39/100 for enforcing contracts. Also, it takes 389 days to resolve cases but the trend shows ongoing improvements.

 

Recoupera Mexico DTF 2016 for enforcing contracts

Source World Bank Group

 

Note that Mexican statute of limitations is 10 years, that is, parties cannot start lawsuits beyond this period.

 

Debt Collection in Mexico

 

So, what do you need to know for debt collection in Mexico? Let’s start saying that Mexican law:

 

a) affords foreign companies the same guarantees, rights and treatment local businesses enjoy.
b) courts rely on documentary evidence, especially in commercial cases.

 

So, let’s start digging deeper and get you your tips for a successful debt collection in Mexico.

 

Five tips for successful debt collection in Mexico

 

TIP 1: Steps to take before Litigation

 

In your credit risk assessment you check your foreign customers credit risk. Your credit application procedure helps checking their creditworthiness, tenure of business and any relevant information.

 

But, in some countries the level of unregulated businesses commands a more thorough investigation. Yet, public accessible databases can provide some initial help. For a start, it is good to check the local companies registry if your importer is a regulated business.

 

In Mexico, you can check the national Enterprise Information System (SIEM) and navigate to Información/Directorio de Establecimientos.

 

How to search Mexican companies registry by Recoupera

 

 

Here, you can locate the business entity by using different parameters such as business name (ie razon social) or others. Selecting this option, you have to confirm your selection and make sure to click on it. Then, a text field offers you to type in the business name you are looking for.

 

If correct – and if others are under that same name – a list will display providing general information. You can finally click on the name on the left hand side column and access more specific information.

 

Another useful information tool is the Mexico’s Credit Bureau website for credit reports and information on registered business entities.

 

Furthermore, if your trade involves patents and trademarks, you may wish to access the Mexican Institute of Industrial Property website. Note that the above services are in Spanish only. But this should not deter you from your due diligence process.

 

Once you have a legal, operating and creditworthy importer, how are you going to managing your credit risk? Simple. You start from the beginning. The next step.

 

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TIP 2: Documentary Evidence

 

As explained above, Mexican courts like documentary evidence. It proves that a sales trade offer and acceptance occurred between the parties. This is a prerequisite for supporting a commercial claim.

 

Thus, as your credit policy for Mexico should mandate, your documents should be in original copy and bear due signatures.

 

Contract signed Recoupera

The burden of proof is on the claimant. And that’s you.

 

Also, Mexican courts accept no photocopies or scanned copies of documents. And you might need certified translation in Spanish. If selling using letter of credit, keep the bill of lading and other relevant documentation.

 

Ensure your sales contract specifies the choice of forum provision and that it is in agreement with your trading partner. If the choice falls on your own jurisdiction, the Mexican court may allow enforcement of your country’s court judgment. But, if the latter ends up being the case, it must meet several preconditions.

 

If you include a non-exclusive jurisdiction clause in your commercial contract it might prove useful, though not always. You must have a strategy about which law serves you better.

 

Recoupera justice in Mexico statue

If you don’t include it, Mexican courts will have jurisdiction about your case.

 

So, to shed any doubts about your legal options in Mexico, hire a Mexican commercial law attorney to help.

 

Analysing your case documentation, potential claim amount and challenges ahead, he or she will tell you of the best strategy. International commercial arbitration is also an alternative.

 

TIP 3: Legal Proceedings

 

There are two main legal proceedings for debt collection in Mexico.

 

a) Ordinary proceeding helps resolving commercial claims in most cases and it takes longer.
b) Executive proceeding are better and faster if the transaction includes a credit instrument.

 

Both roughly follow the same process:

 

1) upon case filing with supporting documents, your debtor has up to 15 days to answer or file a counterclaim.
2) you have 3 days to reply to the answer providing any extra documentary evidence.
3) you can request asset seizure if you go through an executive proceeding.
4) evidentiary hearing takes up to 40 days for acceptance by court.
5) parties have 3 days (2 for executive proceedings) to submit pleadings.
6) within 15 days the judge will issue case decision (8 days in executive proceedings).
7) parties may appeal to judge decision within 9 days.
8) up to 30 days must pass to whether admit or refuse appeal.
9) constitutional proceeding (or amparo) can be filed through federal court.
10) execution of judgment.

 

The executive proceeding gives you good chances of success if you retain debtor’s guarantees and claiming amounts exceeding $10,000. Bear in mind that the above time frames are indicative only. They represent the ideal scenario since it all depends on the state court handling the case.

 

But, suppose your debtor has become insolvent or filed for bankruptcy. If you start debt collection in Mexico from your own country it’ll be difficult getting your money back.

 

Instead, a local attorney will analyse your documentation. He/she will get immediate access to any filings and tell you about your options.

 

TIP 4: How long is long in Mexico?

 

Thus, before you start a costly litigation, your attorney may conduct preliminary investigations. Pre-legal debt collection in Mexico is a faster strategy like in other countries.

 

If the debtor is still operating, your collector may use amicable negotiations to avoid extra costs and payable fees. But, if you must litigate, be ready to provide a notarized power of attorney with an apostille.

 

Document notarized with apostille

Any debt collection in Mexico law courts depends on their current workload. Also, case complexity and other variables can affect the process.

 

Generally, you should expect at least 6-9 months to pass before there is a judgment, if not more.

 

Also, commercial cases may take about an extra year if the Supreme court deals with appeals against state court decisions. There is another reason for hiring a local attorney. He/she knows about to which court the claim can and should be filed. Not all state courts work the same and speed here is your goal too.

 

TIP 5: How much is much?

 

Yes, the most natural question of all: how much is going to cost me?

 

But don’t rush. Another important thing you must know is whether you can actually sue your debtor!

 

Again, if you have followed the advice of hiring a professional attorney, he/she will tell you so in advance – yes, we like to be repetitive. Repetita Iuvant said the Romans. Consider the benefits of a legal battle against its costs and the time it takes to resolve the case.

 

legal costs

For small amounts, the incidence of legal action’s costs may lead you to a Pyrrhic victory.

 

Litigation Costs

 

The DTF table above says that the average legal action in Mexico costs 30.9% of the claim.

 

In fact, it can be higher for the other reasons we saw a bit earlier. But, the above percentage clearly shows that legal action fees grow less at higher amounts. They do not go above their natural upper limit.

 

So, if we are to apply the 30.9% to a $200,000 claim, the litigation disbursements will unlikely be $62,000.

 

On the other hand, claiming small amounts of a few thousands dollars will hardly be a viable option. Not considering that your attorney fees always come on top of the legal costs.

 

So, if your claim is low in value but still important to you, seek out for attorneys willing to share the risk with you.

 

Usually, in the legal profession fees are by the hour or as fixed amounts. However, some attorneys do offer their services on a contingency basis. Then, you know in advance the percentage you will pay them on the recovered amount only. Collection agencies also use the contingency fees model as preferred method.

 

The “no win, no fee” formula shows they share with you the risk of not earning fees if they don’t recover your money. Thus, it surely adds value to their collaboration because you share a mutual interest: collecting the money.

 

Wrap Up

 

Put yourself in a favourable legal position by planning ahead during your credit risk assessment. That is, provision for correct documentation and its filing. Do your preliminary research and keep original copies.

 

Debt collection in Mexico doesn’t differ from other countries. Find licensed collection agencies and/or attorneys. Attempt amicable negotiations. Consider the implications of forum selection in your sales contract.

 

Finally, consult with your Mexican commercial attorney and make sure you know your odds in forced recovery. Act smart, trade safely and enjoy Mexico!

 

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This article contains general legal information and material for informational purposes only which are not intended and should not be taken as legal advice. Recoupera is not a collection agency and it is not a law firm or a substitute for an attorney or law firm. All informational material provided may not reflect changes in the law. For legal advice, contact a lawyer.

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