Report: Mexican Legal Collection System Provides Poor Protection to Creditors

A recent survey assessing trade risks of emerging economies reported Mexico’s slow legal process for debt collection and poor legal protection for creditors as key risks for trade partners.

Commissioned by Atradius, a leading global credit insurer and the parent company of Atradius Seguros de Credito, S.A., surveyed companies currently selling products or services in Mexico reported that:

• 24 percent have experienced problems when employing the legal system for debt collection.
• 23 percent consider the legal system slow and ineffective when collecting against defaulted payments.
• 21 percent believe there is insufficient information regarding the creditworthiness of potential buyers.

"Mexico’s sluggish legal system is a known problem; trying to execute security like personal guarantees and mortgages can take years," said Karel van Laack, Country Manager of Atradius Seguros de Credito in Mexico. "This is one of the many reasons why more and more companies are looking at credit insurance as an effective way to protect against payment problems and earn liquidity."

Trade credit insurance protects a company’s commercial accounts receivable from unexpected and catastrophic losses resulting from insolvency or "non/slow-payment" by its buyers and from political events that obstruct payment. With little protection against defaulted payment and poor information to qualify buyers, credit insurance, a widely used financial tool in Europe, is gaining international attention for its role in securing transactions with emerging markets like Mexico. In fact, through the first nine months of 2007, the credit insurance market in Mexico grew 31 percent.

Mr. van Laack concluded, "The availability of information has been improving in Mexico, which should help stimulate international and domestic trade. Still, the scarcity of information on the creditworthiness of potential buyers remains a significant risk, particularly with small and medium-sized companies. Mexican businesses are sincere about becoming true international traders. The growing use of credit insurance is helping companies understand the need for more transparency in attracting international business partners."