Debt Collection Agency Mexico
Amicable Debt Collections Mexico
1. General information
Cosmopolite Collections maintain a professional collection process, focusing on the relationships between our clients and their debtors at all times.
Our team of collection specialists carry out the collection process in-house, contacting debtors both verbally and in writing whilst adhering to federal and state laws.
We do this by analysing all contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as all standard terms that have been agreed upon).
All investigations are completed with the assistance and agreement of our legal team.
1.2. Local agents
Site visits in Mexico City are performed by our professional collectors and our local partners can currently visit all 31 states.
1.3. Interest
Cosmopolite Collections always charge interest to debtors. If our client has previously agreed a specific rate with the debtor, we will charge that rate.
If no interest rate has been agreed, the current legal rate of 6% per annum is charged.
From a cultural point of view, Mexican debtors are not used to paying moratorium interest on an amicable basis, and often the actual amount of interest is used as a matter of negotiation between debtors and collectors.
Payment of interest can only be enforced through a legal process.
1.4. Debt Collection Costs Mexico
In Mexico, debt collection costs can be charged to debtors, but there are no specific rates or amount established for this.
If the creditor has a special contractual agreement, this can be taken into account as long as the debtor actually agreed to the terms.
From a cultural point of view, Mexican debtors are not used to paying collection costs on an amicable basis, and often the collection costs are used as a matter of negotiation between debtors and collectors.
From a legal point of view, payment of collection costs can only be enforced through a formal legal process.
1.5. Prescription
The statute of limitations states that the time limit for enforcing commercial transactions in Mexico is one year for retail sales and ten years for wholesale, starting at the end of the year when the claim becomes due. Prescription also depends on the document to be enforced.
The time frame to enforce bounced cheques is six months once the cheque has been rejected by the debtor’s bank due to insufficient funds.
Cheques should be presented for payment (at the bank) no later than 15 days starting from the cheque’s payment date; otherwise, an additional penalisation of 20% can be claimed.
For promissory notes, the statute of limitations’ timescale is generally three years after the account is overdue; it can increase to four years for international promissory notes in accordance with the United Nations Convention on International Promissory Notes and International Bills of Exchange.
1.6. Accepted and most common payment methods
The most common payment methods are bank transfers and cheque payments.
1.7. Types of companies in Mexico
Limited liability stock Corporation (Sociedad Anónima / SA) This is the most common type of business entities in Mexico. It usually adopts the form of a fixed capital company (S.A.) or a variable capital company (S.A. de C. V.).
The principal difference between the two is that the latter can increase or decrease their capital within limits established in the by-laws. The shareholders’ liability is limited to their stock interest in the company and the directors are fully liable for the diligent administration of the company.
There must be at least two shareholders and a minimum capital of MXN 50,000, 20% of which must be paid at the time of incorporation.
The shares, which represent the capital stock of the company, are freely transferable and can be traded publicly after the corresponding filings have taken place.
Limited liability company (Sociedad de Responsabilidad Limitada, S. de R.L.)
This type of companies has the same limited liability as an S.A This type of companies must have at least two and no more than 50 partners The minimum capital is only MXN 3,000, 50% of which needs to be paid at the time of incorporation and the option of variable capital can be established.
Civil enterprise (Sociedad Civil, S.C.)
This type of companies is used by professional service providers, such as lawyers and accountants There are no minimum capital requirements There are no limits on the number of partners in a civil enterprise, but each one is jointly and personally liable for obligations and debts.
Branch (Sucursal) Instead of incorporating an entity in Mexico, a company can choose to register their existing foreign company as a branch in Mexico.
The branch must register with the Public Registry of Commerce. The foreign company will also be responsible, along with all their assets, for any liabilities that they incur in Mexico.
Subsidiary (Subsidiario) Unlike a branch, a subsidiary is actually a separate legal entity from a parent company Establishing a Mexican subsidiary shields the parent company from liability.
1.8. Sources of information
In Mexico, it is very complicated to obtain debtors’ financial situations, as private companies are not obliged to publish their financial statements.
Cosmopolite Collections are able to request information from various public registers; all traders have to be registered at the Public Registry of Commerce in the state where they were incorporated. Information from this office carries an administration fee, which may vary from town to town.
At the Public Registry of Commerce, it is possible to get a company’s incorporation details as well as details on their real estate and other enforceable assets.
2. Retention of title
Mexico have very comprehensive, supplier-focused regulations on retention of title (ROT), which must be explicitly agreed upon prior to delivery.
Most importantly, the debtor must acknowledge the ROT before receiving the first invoice.
Not many companies include ROT provisions in their general trading conditions. There are two different kinds of retention of title: B asic ROT The goods supplied remain the legal property of the supplier until full payment.
The supplier can or must get the goods back. I ncreased ROT Open account retention. In the course of on-going business relations, the supplied goods remain the legal property of the supplier until all outstanding amounts from the open account or business relations have been fully paid.
3. Safeguarding measures
In case the debtor is not able to settle a claim in a speedy manner, Cosmopolite Collections can request that the debtor secure the debt in favour of our client. This can be done amicably and cost-effectively by providing an acknowledgement of debt authenticated by a notary and is immediately enforceable in case the agreed payment terms are not honoured. Corresponding notary costs have to be carried by the client in the first instance and can be recharged to the debtor later on. Approaches like this have to be evaluated on a case-by-case basis and are dependent on the outstanding principal amount. The debtor is also able to offer other means of security, such as mortgages, assignments of debts or assets. Contracts must be drawn up for assignments of debts or assets, while mortgages have to be registered by a notary.
4. Legal collections
4.1. General information
The modern Mexican legal system is composed of public law, which regulates relations between citizens and the state, and civil law, which regulates the relations between two people or companies. Mexico have adopted the use of codes, like the federal Civil Code and the Commercial Code, although each state has adopted its own codes with each area aligned to the federal laws. In case of any discrepancy, the federal law will override the civil law.
4.2. Legal system
The structure of the court system in Mexico distinguishes between courts of ordinary jurisdiction (including civil, commercial and criminal jurisdiction) and administrative courts or courts of special jurisdiction. Courts of ordinary jurisdiction include the federal courts and state courts. At the federal level, the Mexican Supreme Court is the highest court and decides the most important cases in the country. Next in authority and significance are the circuit courts, which take up cases on appeal and amparo cases. District courts have jurisdiction over amparo cases in the first instance and function as courts of ordinary jurisdiction on matters of federal law, such as commercial law cases. State law establishes the structure and function of the courts in each state in Mexico. In general terms, state courts are organised in the following manner: the highest appellate court is known as the Superior Court of Justice, followed by the courts of first instance, which deal with civil hearings, criminal and commercial cases. Then there are minor courts of special jurisdiction, such as the family courts and bankruptcy courts (unlike in the United States, where bankruptcy matters fall under the jurisdiction of federal bankruptcy courts). The jurisdiction is divided by the matter of the case and the amount of monies it is dealing with. Usually, a collection lawsuit should be started at the state court nearest to the debtor’s address, unless both parties had agreed on a specific jurisdiction or it was left to the creditor to choose.
4.3. Required documents
In order to start an ordinary legal procedure, each step of the trading relationship between the debtor and the creditor should be provable by documentation. Therefore, Cosmopolite Collections need the following original documents: Invoices Delivery notes and / or bills of lading A clear statement of account indicating payments Credit notes that have been booked against the outstanding monies A notarised power of attorney with an apostille. It is worth mentioning that courts in Mexico do not allow simple or scanned copies in a lawsuit, so original documents are needed. If the documents are not written in Spanish, a proper and certified translation of all documents will be required. Original or certified copies of the following documents may be asked for but are not compulsory: The contract Purchase orders Bills of lading The relevant correspondence between the creditor and the debtor. In order to start an executive legal procedure, we need either the original promissory notes or bounced cheques with a special endorsement wording. No notarised powers of attorney with apostilles are needed if the lawsuit can be supported either with a promissory note or a bounced cheque.
4.4. Legal dunning procedure
In Mexico, the legal dunning procedure does not exist. However, to make a stronger payment request, it is acceptable to issue a formal payment request through a notary. Notary fees should be covered by the client and may vary from town to town.
4.5. Lawsuit
The regular lawsuit procedure is initiated directly after the amicable collection has failed due to a dispute by the debtor or because the debtor has ignored payment demands. In Mexico, mediation or arbitral procedures are not used for collection purposes, and a lawsuit can be filed directly.
4.6. Appeal
An appeal against a judgment is possible, which will trigger a verdict by the court of second instance (circuit courts). Only cases of over MXN 240,000 can be appealed. In the case of third instance (amparo), a review request should be made to the district courts or even the Mexican Supreme Court, depending on the case jurisdiction and the amount.
4.7. Debt Collection Costs in Mexico
All costs are dependent on the outstanding principal amount and are calculated taking into account the amounts kept by each party. There are different fees that can apply during a procedure, making it difficult to predict the total costs. In addition to this, costs of witnesses and/or experts might also arise. A cost estimation will be provided on a case-by-case basis should legal action becomes necessary.
4.8. Expected time frame
The average duration of a legal process is between one and three years, depending on the complexity of the case and the availability of the judge and lawyers on all sides. Legal processes started using a promissory note or a bounced cheque as a main support can be shorter compared to a process supported by due invoices.
4.9. Interest and costs in the legal phase
Extrajudicial interest and costs can be claimed as part of the outstanding monies during the legal proceedings. If the parties agreed on no specific interest rate, then an annual rate of 6% will be applicable. In all cases, the losing party has to bear the costs of the legal proceedings that have been calculated by the plaintiff. These must be based on the Code of Civil Procedures provisions and cannot be higher than 20% of the claim amount.
5. Enforcement
5.1. Enforcement in debt
The creditor can block the bank account of the debtor only if it can be proven in court that there is a risk of misappropriation of the funds. However, the difficulty of blocking the debtor’s bank account lies in the ability to obtain the debtor’s bank information, as it is not public in Mexico, and banks are not obliged to provide it.
5.2. Enforcement in movable property
Enforcement can be made once a final judgment is obtained; however, through an executive collection procedure, movable property to secure payment of the debt can be appointed at the moment the debtor is served. It is also possible to take the property away to avoid the debtor’s misuse, but they cannot be sold or liquidated until a final judgment is dictated. For ordinary procedures, enforcement cannot be made until a judgment is obtained.
5.3. Enforcement in immovable property
Enforcement can be made once a final judgment is obtained; however, through an executive collection procedure, movable property to secure payment of the debt can be appointed at the moment the debtor is served. It is also possible to take the property away to avoid the debtor’s misuse, but they cannot be sold or liquidated until a final judgment is dictated. For ordinary procedures, enforcement cannot be made until a judgment is obtained.
5.4. Expected time frame
Enforcement of monies usually takes several months. However, once a debtor’s bank account is enforced (blocked), this usually forces the debtor to make a payment offer. The time frame for enforcement of real estate depends very much on the single course of the case, the court, possible banks and, of course, possible buyers.
6. Insolvency proceedings
6.1. General information
As per the Commercial Insolvency Law (CIL), insolvency proceedings will contemplate both reorganisation and liquidation. Reorganisation is requested if the entity is declared commercially insolvent. The aim of the insolvency proceedings is to pay out all creditors with the same percentage of the debts by liquidating the company’s assets or by collecting the enforceable incomes.
6.2. Proceedings
After the debtor or a creditor files for a reorganisation or liquidation, Cosmopolite Collections will be permitted to use the lender’s collateral, as agreed upon in the corresponding security agreements. If the entity is declared commercially insolvent, the conciliatory stage is activated in order to acknowledge the creditor’s attempt to reach a reorganisation agreement. During this stage, the conciliator must prepare a list of the creditors and determine the amount, order and level of preference of their credits. In this stage, the conciliator (appointed by the Federal Institute of Specialists in Bankruptcy) should also coordinate the execution of the reorganisation agreement between the entity and its creditors. The suspension lasts until the conciliation stage is terminated; this is usually within 180 calendar days, which may be extended by an additional 180 days under certain circumstances. During the conciliatory stage, the debtor may seek financing as usual, but any new credit and security agreements must be approved by the conciliator. Administrative enforcement proceedings of tax credits will be suspended, but the competent tax authorities may be willing to take safeguarding measures to secure tax credit payments. Management During the conciliatory stage, the management of the company will remain with the debtor, although the conciliator will supervise the books and all operations and will decide on the termination of pending contracts. The conciliator will also approve, with a prior input from the intervenors (appointed by the creditors with oversight capacity), the contracting of new credits, the establishment or substitution of guarantees and the sale of assets when those are not inherent in the day-to-day running of the business. Date of retroaction This law refers to a concept called date of retroaction, (also known in English as the suspicious period), which exists to determine if, during a previous period, acts that may have defrauded creditors were performed or are presumed to have been performed. As a general rule, the date of retroaction will be 270 calendar days prior to the date of the declaration of commercial insolvency. However, the judge at the request of the conciliator, the intervenors or any creditor may establish a prior date as the date of retroaction. The acknowledged creditors are classified into ranks according to the nature of their credits, and the CIL contemplates that payment of these credits is made based on their level of preference. No payment can be made to a credit of one rank without previously having liquidated those from the previous ranks, according to the priority established for them. With regard to credits with collateral (secured credits), only the following credits against the estate will have preference: The preferential labour credits – wages or salaries and accrued benefits for a period of two years prior to the date of the declaration of commercial insolvency Legal fees incurred for the defence or recovery of property subject to guarantee or on which the privilege falls The necessary expenses for the replacement, conservation and sale of such property subject to guarantee Credits against the estate.
6.3. Required documents
In order to lodge a claim, Cosmopolite Collections will need:
- An original power of attorney properly notarised with an apostille
- Original invoices
- Original contracts (if they exist)
- Clear copies of orders, confirmations and delivery notes
- Clear copies of general conditions of sales, should there be any
- Clear copies of any other correspondence that may verify the claim.
6.4. Expected time frame and outcome
The deadline to lodge claims is 180 days and is activated once the debtor files a reorganisation or liquidation request. The whole duration of insolvency proceedings is between five and ten years.
6.5. Limited companies
Limited companies will file for insolvency for three main reasons. The first one is the inability to pay, which does not automatically mean that a buyer’s assets do not cover all debts. Under special circumstances, it could be the case that only the actual liquidity does not cover the debts due, but in general, the company’s expected liquidity would. The second reason is the expected inability to pay, which means that the management already knows that within a certain time span, the company will be unable to pay the debts due. The third reason is accounting insolvency, which means that the buyer’s assets do not cover the debts.
7. Arbitration and mediation
If the creditor and the debtor agree on an alternative dispute solution, there are two options available: arbitration or mediation. In mediation, an unbiased third party known as the mediator assists both parties by conducting private interviews and negotiations to discuss settlement opportunities and facilitate an agreeable solution. In arbitration, disputes are brought before a neutral third party known as the arbitrator, who after carefully reviewing all of the relevant information, reaches a final decision in favour of one of the parties. Both arbitration and mediation must employ a neutral third party, and both agreements can be seen as binding. Both mediation or arbitration fees and expenses should be covered by both parties. The Mexican Commercial Code contains a provision that regulates arbitration. Mediation is done by professional organisations such as the Mexico City National Chamber of Commerce (CANACO). The new agreement is not a judgment, but a kind of contracts.
Mexico is a country located in North America. Its capital city is Mexico City. Mexico is divided into 32 federal entities. The government system of Mexico is a federal presidential representative democratic republic. The official language of Mexico is Spanish, and the currency is the Mexican peso.
Collecting debts in Mexico can be challenging for foreign businesses due to a number of factors, including the country's economic and political instability, the complexity of the legal system, and the difficulty of enforcing judgments. There are a number of debt collection agencies operating in Mexico, and the industry has been in existence for several decades.
The national credit bureau in Mexico is the Central de Información Crediticia, and some of the private credit reporting companies operating in the country include CRIF, Equifax, and Experian. Debt collection laws in Mexico are generally uniform throughout the country, although local laws may sometimes apply.
There are several benefits to using commercial debt collection services for Mexico:
- Expertise: Debt collection agencies have specialized knowledge and experience in recovering debts, which can be particularly useful for foreign businesses that may not be familiar with the local legal and cultural environment.
- Efficiency: Debt collection agencies can often recover debts more quickly and efficiently than businesses can on their own, as they have the resources and expertise to pursue multiple avenues for recovery.
- Cost-effectiveness: Using a debt collection agency can be more cost-effective than trying to recover debts on your own, as you can avoid the time and expenses associated with pursuing legal action.
- Risk reduction: Debt collection agencies can help to reduce the risk of non-payment by providing credit risk assessment and monitoring services.
- Language skills: Multi-lingual debt collectors can communicate effectively with Mexican debtors, which can be particularly helpful for foreign businesses.
- Local presence: Debt collection agencies with local presence and knowledge of the local legal and cultural environment can be more effective at recovering debts in Mexico.
- Online services: Many debt collection agencies offer online tools and services, such as 24/7 debt recovery report websites, which can be convenient and efficient for creditors.
Our debt recovery agency has a very high success rate in Mexico thanks to our multi-lingual debt collectors located in the country and our 24/7 online debt recovery report website. We have local debt collection managers in the cities of Mexico City, Guadalajara, and Monterrey.
