1.1 Amicable Phase

1.1.1 General

Accounts Receivable Mexico is committed to providing a friendly and professional debt collection process to both our clients and the debtors that we attempt to reach. Our professionals proceed with the process in-house, ensuring a consistent commitment to quality throughout the process.

In Mexico, it is quite common to actually dispute the validity of a debt. This process can cost our clients both time and money, so we work to gather all necessary documents — from contracts to order, invoices, and confirmations — in order to prove a debt’s validity and speed the recovery of the money for our clients.

1.1.2 Local agent

Our own in-house staff performs on-site visits to clients and debtors in Mexico. We employ a professional collections staff that follows all state and federal regulations.

1.1.3 Interests

An interest rate is almost always charged on debt in Mexico. If our client has not agreed to a specific interest rate with their client, Accounts Receivable Mexico will charge the current legal interest rate of 6 percent per annum.

It should be noted that debtors in Mexico are used to using an interest rate as more of a repayment negotiation tool than as a mere addition to their debt’s sum. We employ this negotiation during the process, but we’re mindful that any interest rate agreed upon can and will be legally enforced.

1.1.4 Debt collection costs

Mexican debtors can be charged the costs of the debt’s collection, but there is no set rate for doing so. Often, the costs for debt collection are set forth in the agreement between the debtor and our client, and that agreement will be enforced when the costs are calculated.

Again, Mexican debtors typically are used to using collection costs as a negotiation tool used for settling the debt. This will be employed by Accounts Receivable Mexico where necessary, and the agreed upon costs will be enforced.

1.1.5 Prescription

Mexico’s statute of limitations for debts involving retail sales is one year. For wholesale sales, that increases to ten years, starting at the end of the year when the debt itself became due to our client. This prescription of time can vary based on the document being enforced, however, with cheques being eligible for collection up to six months after it was rejected by the debtor’s financial institution.

For things like bills of exchange and promissory notes, the Mexican statute of limitations is generally three years after the account has become past due. That increases to four years for international versions of promissory notes and bills of exchange.

1.1.6 Accepted and most common payment methods

Accounts Receivable Mexico typically accepts payments in the form of a cheque or bank transfer.

1.1.7 Types of companies

Limited Liability Stock Corporation (Sociedad Anónima / SA)

A limited liability stock corporation is the most common type of business in Mexico. it typically is indicated by the “S.A” after its name, indicating that it’s a fixed capital company. Variable capital companies are indicated by a “C.V.” suffix. Variable capital companies can increase or decrease their amount of capital within limits established by Mexican bylaws.

Liability of shareholders is limited to their stock interest in the company, and there must be a minimum of two shareholders, as well as 50,000 Mexican pesos. A full 20 percent of that capital must be paid when the business is incorporated.

Shares represent the capital stock of the company. They’re transferrable and traded publicly after the proper paperwork has been filed. A minimum of 50,000 pesos is required to form this type of company.

Limited liability Company (Sociedad de ResponsabilidadLimitada, S. de R.L.)

Listed as an “S.A,” this company is required to have a minimum of two partners and a maximum of fifty. Only 3,000 pesos need to be used as capital, and only 50 percent needs to be paid when the business is incorporated.

Civil enterprise (Sociedad Civil, S.C.)

Professional service providers like accountants and attorneys are classified this way, and this type of business has no minimum requirements for capital. There are no limits on how many partners can be included in a civil enterprise; each partner is responsible for financial obligations and any debts.

Branch sucursal

This type of business is essentially listed as a branch of an existing company in Mexico. IT must be registered with the company’s Public Registry of the Commerce and, though foreign, the originating company is responsible for any liabilities or assets that it acquires from its business in Mexico.

Subsidiary (Subsidiario)

A subsidiary is not a branch, but actually a separate legal entity form a parent company operating either in Mexico or abroad. That subsidiary is differentiated by its holding of the parent company’s stock. This ensures that the parent company is protected from Mexican debts or liabilities.

1.1.8 Sources of information

It can be rather hard to gain a debtor’s financial information when seeking to collect a debt. The country’s companies are not required to publish any financial statements that might be of use to Accounts Receivable Mexico.

Accounts Receivable Mexico is able to request certain information from public registers throughout the country, like the Public Registry of Commerce in the state where the debtor’s business was incorporated. This allows us to obtain the company’s incorporation information as well as information about real estate dealings and other acquired assets since the time the business was incorporated.

1.2 Retention of Title

Debtors are subject to comprehensive regulations as it pertains to Retention of Title. Such an agreement must be made prior to delivery; the debtor must also acknowledge the title before receiving their first invoice from a distributor or delivery agent.

There are two kinds of ROT in Mexico:

1. Basic ROT: Any goods or services delivered remain the property of the delivery agent until full payment has been processed and cleared.

2. Increased ROT: This essentially pertains to an open and ongoing account. Goods remain the property of the distributor until they have been fully paid off and cleared.

1.3 Safeguarding measures

A debtor is sometimes unable to satisfy a client’s claim in a quick and efficient manner. When that happens, Accounts Receivable Mexico has the right to request that the debtor actually secure the debt in our client’s favor. That process is typically done amicably by agreeing on an acknowledgement of debt. A notary verifies the document and it immediately becomes enforceable if the terms of repayment are not followed.

The debtor pays for the cost of utilizing a notary. We receive the agreement directly. If the debtor is not capable of covering these costs immediately, those costs may be covered by Accounts Receivable Mexico and charged to the debtor at a later time. In the meantime, those costs are charged to the client. This is done on a case-by-case basis with the client’s full consent.

Other types of security for the debt include the debtor’s mortgage, other debts, or their current assets. A notary must verify the use of a mortgage, while a contract is sufficient for assets or debt assignment.

1.4 Legal Procedures

1.4.1 General

Mexican law is based on public law when proceedings pertain to citizens and the state. Civil law is used for interactions between two people, two companies, or people and companies together.

Mexico has Civil Code and Commercial Code, both of which are aligned to federal laws. Federal law always overrides civil law.

1.4.2 Legal System

Mexican courts are divided into those of ordinary jurisdiction, for civil, commercial, and criminal matters, and administrative courts for special cases. Courts of ordinary jurisdiction include federal and state courts, the Mexican Supreme Court, and the country’s Circuit Courts. District Courts are also considered part of this system, and they have jurisdiction over things like commercial law and regulatory matters.

Mexico’s state courts are informed by the passage of state legislation. The highest state court is known as the Superior Court of Justice. Before proceeding there, cases must pass through the Courts of First Instance. These courts deal with civil hearings, criminal cases, and commercial disputes. Courts with special jurisdiction are involved in family disputes and matters like bankruptcy.

Typically, collections-based lawsuits begin in the lowest state court that is nearest to the debtors address, unless agreed otherwise.

1.4.3 Required documentation

A debt must be provable and verified by the company claiming it against the debtor. This is done by providing the following documentation before the start of a case:

- Invoices
- Delivery notes
- Account statements, including any payments made
- Credit statements including amounts charged against the debt
- Notarized power of attorney

Original documents are always needed, as Mexican courts do not permit copies of documents during a lawsuit. If translated from a language other than Spanish, documents will need to be verified before admission.

Additionally, some of the following documents may be required:

- Contracts
- Purchase orders
- Any bills of lading
- Proof of communication between the client and the debtor

Original promissory notes or bounced cheques are also required before the process can proceed.

1.4.4 Legal dunning procedure

There is no legal dunning procedure in Mexico. This can be compensated for by issuing a formal letter requesting payment through a Public Notary. The creditor will cover any notary fees.

1.4.5 Lawsuit

A lawsuit can begin only after amicable collection processes have failed, largely because of a dispute filed by the debtor or because the debtor hasn’t responded to demands for payment. Mediation and arbitration are not used. Lawsuits are filed directly.

1.4.6 Appeal

Appeals against a judgment are permitted; this will cause the case to go to a Court of Second Instance, known as the Circuit Court. Cases below 240,000 pesos cannot be appealed, however. If cases are appealed to a Third Instance, a review request will be submitted to District Courts or the Supreme Court, based on the debt’s amount.

1.4.7 Costs

The cost of legal procedures depends on the amount of the outstanding debt and is calculated independently by each party. Fees vary based on procedure, making them hard to estimate. Witnesses and experts will also raise costs. Accounts Receivable Mexico will estimate costs on a case-by-case basis.

1.4.8 Expected timeframe

Lawsuits typically take between one and three years, depending on the judge, lawyers, and other availability.

1.4.9 Interest and Costs

The losing party has to pay for the cost of legal proceedings, as well as interest and fees incurred as part of collection. Legal costs collected cannot be more than 20 percent of the outstanding debt.

1.5 Enforcement

1.5.1 Enforcement in debt

Creditors can freeze the debtor’s account, making this a useful collection tool. This is difficult, however, as most debtors’ bank information is not readily available. Very detailed information about the debtor is required in this instance.

1.5.2 Enforcement in movable goods

Enforcement can begin when the debtor is served for executive procedures. This is done by assigning movable goods to the debt, or removing those goods until they can be liquidated to satisfy a judgment. This often means enforcement cannot begin until a judgment is made.

1.5.3 Enforcement in immovable goods

This is the most common way to enforce collection. It’s easy and possible to obtain a record of the debtor’s assets, and place a claim in the land register. This can force a few things:

- An attachment
- An attachment and sale
- Sequestration of tenant-occupied buildings by order of the court

These processes are certainly more expensive, but are also more effective.

1.5.4 Expected timeframe

Enforcements typically take several months to be effective for the creditor, unless the debtor is forced to make a payment offer.

1.6 Insolvency Proceedings

1.6.1 General

Insolvency in Mexico, per the Commercial Insolvency Law, considers both reorganization and liquidation as potential options for debtors. Reorganization is used when a business or individual is declared commercially insolvent. Liquidation is used in other cases.

Liquidation’s aim is to pay out an equal percentage of the liquidated assets’ value to each creditor with a claim to the funds.

1.6.2 Proceedings

The lender’s collateral can be used after a debtor or creditor files for reorganization or liquidation.

If they are declared commercially insolvent, a conciliatory stage begins. This promotes the development of a Reorganization Agreement between the debtor and their creditors. Mexico’s Specialists in Bankruptcy coordinate this agreement and execute its terms. The conciliator must provide a list of creditors and determine how each of their debts will be satisfied as part of this process.

The conciliatory stage typically lasts 180 days. During this time, the merchant may seek financing as they usually do. The conciliator must approve any new financing or lending products, however. Enforcement of things like tax credits will be suspended during this time, while tax authorities can continue determining whether tax credits should be used against the merchant.

Management of the company during the conciliatory stage will stay with the Merchant, though the conciliator will review and supervise bookkeeping. The conciliator will also determine the validity and termination of contracts, the taking on of new credits, and the substitution of guaranties and sale of assets that are not essential to the day-to-day operations of the business itself.

The date of retroaction, also known as the “suspicious period,” exists to determine whether the Merchant defrauded creditors in a previous span of time. The date of retroaction is 270 days prior to the declaration of commercial insolvency. A judge may, however, determine a different date of retroaction if they deem it necessary.

Creditors are classified into a ranking system based on the nature of their credits as determined by the CIL. The CIL assures payments of said credits based on the level of the creditor’s rank, and those credits are applied in rank-based order.

The following credits will be given higher priority:

- Preferential Labor Credits, including salaries and benefits accrued two years prior to the declaration.

- Legal fees incurred for the defense or recovery of property declared

- Expenses for the replacement or sale of that property

- Any credits lodged against the estate

1.6.3 Required documents

Accounts Receivable Mexico must have the following documents when filing a claim:

- Notarized power of attorney
- Original invoices (not copies)
- Contracts
- Copies of order confirmations and deliveries
- Copies of conditions of sales
- Copies of relevant correspondence

1.6.4 Expected timeframe and outcome

A 180-day deadline exists for lodging claims. It’s begins when the reorganization or liquidation request is filed. Insolvency takes between five and ten years to complete.

1.6.5 Limited companies

Limited companies typically have three reasons for filing for insolvency:

- An inability to pay debts, as well as the inability to cover the cost of debts with the company’s liquid assets, while expected liquidity after insolvency would be sufficient.

- An expected inability to pay debts, with management understanding that the company will be insolvent within a given span of time.

- Accounting insolvency, where assets will not cover the debts even during liquidation

1.7 Arbitration and Mediation

Creditors and debtors can agree to an alternative course of action, include arbitration or moderation.

Mediation sees an unbiased, third party moderator conduct interviews and negotiations with debtors and creditors. Settlement terms are proposed and agreed upon.

Arbitration is when disputes are brought before a third-party arbitrator with a neutral position. The arbitrator makes a final decision in favor of either the debtor or creditor.

Agreements in both cases are binding, and must be encouraged by a neutral third-party mediator or arbitrator to ensure a fair process. Proceedings typically last just one day. Arbitration, it should be noted, is based on Mexico’s civil law. Mediation is done by professional organizations and represents a contract — not a judgment.

To get started today, call us at321-710-3530 to speak with an associate
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