Where trust meets compliance: Mitigating risk in Mexico through effective legal and credit practices 

Mexico’s economy, the second largest in Latin America, is powered by vigorous manufacturing and oil sectors and plentiful natural resources. Despite having a thriving economy, Mexico faces wide income gaps, underemployment, a large informal sector and underdeveloped infrastructure, according to FocusEconomics. It is also experiencing heightened cartel violence, increased corruption and sweeping tariff costs.

One credit professional recently reported slower payments and fewer responses from Mexican customers. “We have been experiencing some payment slowing lately and often, we are not getting customer responses to our inquiries,” said Dee Stephens, CCE, CICP, credit and collections manager at Ventura Foods (Irvine, CA). “Sometimes, it can be challenging to pull credit or bank references, and credit reviews generally take longer because of that. We’re also finding that we may need to engage our sales team in the collection process.” 

Through effective legal strategies and risk management, credit professionals can navigate these challenges and strengthen ties with their Mexican customers. 

Navigating Mexico’s legal system  

Despite an established legal framework, Mexican litigation is often a complicated and lengthy process subject to corruption risks. Guerrilla tactics are common practice in Mexican courts, involving intentional, dishonest acts where a party fails to fulfill legal or contractual obligations or misleads another party. When applied, guerrilla tactics can prolong cases and increase credit exposure.

“Lawyers representing debtors may intentionally stall a case by taking advantage of court inefficiencies as they come,” Romelio Hernandez, Esq., president at HMH Legal (Tijuana, Mexico), said in the NACM webinar, Navigating Credit Risks in Mexico: Legal Strategies to Mitigate Risks. “My one piece of advice is where the rule of law is weak, robust and strategically designed contracts become your primary shield, leveling the field to protect your interests.”   

Litigation in Mexico depends less on physical location. As a result of the pandemic, most Mexican courts allow for electronic litigation, the use of digital technology and internet-based platforms to handle legal processes. This serves as a cost-effective and efficient alternative to traditional, in-person hearings, especially for international corporations. 

Legal strategies to mitigate risk 

Credit managers can begin mitigating risk by practicing due diligence and researching the market. To learn more about their customers, they can ask the following questions:  

• Does the customer currently have any lawsuits?  
• How many corporations are at the same address?   
• Is the customer part of a corporate group?   
• What is the name of the customs broker in Mexico?   
• How many years has the company been in business?  
• What is their brand presence?  

“Multiple corporations tied to the same address can be a strong indicator of fraud, so it’s important to take note of how many corporations there are in one place,” said Hernandez. “Knowing if a customer is part of a corporate group is vital because it’s more difficult to pierce the corporate veil or sue the parent company in the case the debtor doesn’t have any assets. Getting the name of the customs broker is also helpful because they can testify whether the customer imported products from you when necessary.”   

Identifying specific risk scenarios and preparing a sound legal strategy are critical for credit professionals doing business in Mexico. This may involve reviewing jurisdiction clauses, developing strategic terms, adding incentives and checking for a riskier situation. Securing transactions based on Mexican law is also advantageous.

Requesting a pagaré, or promissory note, upon opening a credit line unlocks an executive proceeding, allowing for immediate attachment of the debtor’s assets at the start of the case. “If creditors hold a pledge or guaranty trust, they can attain a special proceeding designed for repossession of collateral,” said Hernandez. “A mortgage gives you a summary proceeding for foreclosure.”  

Risk management from credit professionals  

To limit potential losses, credit professionals need to account for Mexico’s documentation and compliance requirements. “Compared with the United States, Mexico generally requires greater attention to invoicing, tax documentation and compliance-related requirements,” said Jeff Weber, CICP, director of collections and cash applications at Uline (Pleasant Prairie, WI). “These requirements can add complexity to the order-to-cash process and make accuracy especially important. Success often depends on strong communication and maintaining close alignment between sales, customer service, finance and the customer.”  

Credit professionals can reduce risk exposure by understanding and appropriately adapting to their customers’ business culture. Mexico’s professional setting is formal and hierarchical, requiring specific business etiquette. It is also class-conscious, with visitors judged by their appearance, mode of transportation and choice of hotel. As a result, making a good first impression is a priority for visiting credit professionals. 

Mexican business relationships are built on trust developed through personal connections made before engaging in professional transactions. Because family ties are highly valued in Mexico, it is customary to socialize with Mexican colleagues’ family members outside of formal business settings. Often, a familial connection can help establish a customer relationship. 

“Simply visiting a customer for a day can make a big difference in payment behavior,” said Nerio Gonzalez, CICP, manager of global credit and collections at APL Logistics (Scottsdale, AZ). “Once they know that they can trust you, they are more likely to pay you sooner. You can form a closer bond by speaking Spanish with them.” 

The bottom line: Mitigating risk in Mexico takes both sound legal protections and strong customer relationships. Contracts and compliance guard against losses, while trust built in person can help customers pay sooner.