Magazine article Business Credit

Operating in Mexico: Effective Cash and Treasury Management South of the Rio Grande

Magazine article Business Credit

Operating in Mexico: Effective Cash and Treasury Management South of the Rio Grande

Article excerpt

Before you decide to expand your business under the sunny skies of Mexico, you can save yourself some real headaches by taking a close look at the cash and treasury management services you'll need on the ground there and doing some advance planning to deal with them.

IN THE PAST FEW YEARS, WE HAVE SEEN A SURGE IN THE NUMBER of Canadian companies interested in doing business in Mexico. Much of that interest is certainly attributable to the 1994 North American Free Trade Agreement, which is dismantling trade barriers and making it easier to do business in Mexico. The Maquiladora zone near the U.S. border is another factor. Firms operating in the zone can import parts, assemble products and then export them, paying tax only on the value added in Mexico. It has proven to be a real draw for many large U.S. and Canadian manufacturing plants. Canadian suppliers are locating in the zone to be as close as possible to their customers.

Mexican labor costs are as much as 80 percent lower than Canadian wage rates; the business climate is favorable, and Mexico is close to major American markets including California, Texas and Florida. Plus, the Mexican market is large and increasingly important in its own right, with 90 million people and a growing middle class.

It all adds up to a sunny business climate, one that is increasingly hard for many companies here to ignore. In fact, companies of all sizes are expressing interest and incorporating a Mexican presence into their business strategies. We are seeing Canadian companies exporting directly from Canada, establishing distribution facilities, acquiring Mexican companies or building their own plants in the country.

Operating in Mexico presents a number of challenges for treasurers and finance staff. To be successful with a Mexican venture, treasury staff must deal with the challenges of:

* the banking and business environment

* managing funds in Mexico, and

* controlling Mexican interests from Canada

The Banking and Business Environment: One of the surprises facing many Canadian firms after they establish a presence in Mexico is how much different the culture is as it relates to business and banking. Language is the most obvious difference, and that alone presents some real challenges. Business is done in Spanish, and financial documents must be filed in that language. It's vitally important to have access to someone who speaks your language to assess your needs and help guide you through the process of establishing a banking relationship and services.

But language is only one of many differences-both subtle and not so subtle-in the way business and banking is done in Mexico. Most have a direct impact on cash and treasury management.

For instance, in Canada and the U.S., we refer to invoices as "receivables," and the onus is on the company that purchased your goods or services to pay.

In Mexico, invoices are referred to as "collectibles." It's up to the company selling the goods or services to collect the money. To do that, it must make it as easy as possible for the purchaser to pay. The more difficult it is to pay, the longer it takes the seller to collect.

Simply dropping a check in the mail isn't the way most invoices get paid in Mexico. In fact, the mail is notoriously unreliable. It takes a long time for a payment to make its way through the system to your desk. Even when it does, there's a good chance the envelope may have been opened and the check removed.

Although electronic banking capabilities are growing rapidly, many Mexican companies still have their clerks pay invoices in person at the bank of the company that issued them. Without an arrangement with a Mexican bank with a significant branch network, the difficulties are immediately apparent.

To facilitate payments, some Mexican banks offer a "bill presentment" system, through which a company sends details of its invoices sorted by creditor to its bank. …

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