Bad debts and customer delinquencies: the other headache of Mexican companies

Seven out of 10 companies are financed through their suppliers with long payment terms.

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22, 2021

4 min read

This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.

Opinions expressed by Entrepreneur contributors are their own.

  • Invoices that are not paid on time rose to 15% of the total value of sales in 2020.
  • Up to 300% increased requests for financing through factoring.

In addition to the financial challenges that Mexican companies have had during 2020, marked by the COVID-19 crisis, unpaid bills and late bill payments also represented a significant challenge on the road to recovery , according to the fintech Drip Capital Mexico .

“At the same time that cash flows are becoming a headache for companies, they have also increased delinquency by their clients and uncollectible accounts, that is, those overdue invoices that are expected to no longer be paid” , said Edmundo Montaño, CEO of Drip Capital Mexico.

Based on a recent report by the insurer Atradius, with which this fintech collaborates for its credit assurance processes, the manager explained that, in the context of COVID-19, and during 2020, up to 52% of total sales between companies (B2B) are carried out through commercial credit , that is, an increase of 7% was seen.

Likewise, the percentage of invoices that are not paid on time rose to 15% of the total value of sales in 2020, while delays in intercompany payments reached 47% of credit sales.

However, while in the industry in general these figures rise, Drip Capital reveals that the situation is different in the field of exports among the clients of this fintech that, according to its reports, saw a 50% increase in its volume of financing last year in which it exceeded one billion dollars financed globally.

“In the case of exporters that use our financing, we have not observed a credit degradation in the portfolio, an increase in bad debts or bad debts. Primarily because our factoring solution helps protect your sales by requiring customer verification and approval, in addition to giving us the option of obtaining commercial credit insurance at an affordable cost, ”explained Montaño.

In this sense, Edmundo Montaño highlighted that fintech has had an increase of up to 300% in the demand for requests for financing accounts receivable in Mexico, which he attributes, in the first place, to the need for liquidity of companies, but also because they see a real opportunity to reduce the risks of non-payment, as well as to have an ally to help with collection.

This is in a context in which, according to the latest report on the Evolution of Financing for Companies from Banco de México, 7 out of 10 companies are financed through their suppliers, who impose long payment terms on their invoices, while 31.4% of companies use commercial bank credit, thereby acquiring debt and even over leverage.

“Financing through factoring is a tool that not only helps inject working capital, it is also a good practice to have a more secure and efficient management of a company’s finances. This instrument, in particular, stands out in this complex context and in the economic recovery process because it helps to reduce the chances of falling into insolvency and to deal with the complications related to the lack of liquidity, of the companies or their clients ”, he concluded the director of Drip Capital.

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