“In Mexico, unfortunately, more than 75% of companies use credit with their suppliers as a source of temporary financing of 30 to 120 days on average, or stop paying their suppliers even without liquidity problems or bankruptcy, report the results of the Survey of the Evolution of Financing to companies in the 1Q 2020 of Banco de México” suggests that this may have a negative effect on the economy in the long term.
Source: Banxico.
Regarding the sources of financing used by companies in the country in the reported quarter, 75.9% of the companies surveyed indicated that they used supplier financing, 36.5% used commercial bank credit, 21.3% indicated that they used financing from other companies of the corporate group and / or the head office, 5.6% of development banks, 4.8% of banks domiciled abroad and 2.4% due to debt issuance. Although the trend has been this way for the last 15 years, economic items from the Banxico (Bank of Mexico) report themselves.
What should the Government do in the face of the series of unfortunate events after COVID-19, in addition to the knowledge that the largest corporate companies are financed by their suppliers in Mexico and that no one can avoid it because the Law in Mexico does not contemplate factoring as "Mandatory” And it has become a weapon of negotiation that until now has benefited the richest and most powerful companies, generating two important points of view in this multifactorial problem:
The first is one of the corporations in Mexico that have a permanent strategy throughout the year to ask the Mexican government for resources and subsidiary lines such as those of the Economic Development Institution called Nacional Financiera (NAFINSA) to grant funds of factoring subsidized also added to the resources that they obtain from their "Corporate Holding" and other commercial banks to finance corporations of their supply chain that they denominate as "High priority" to make millionaire purchases of merchandise and on the other hand, based on a system of Rewards the factoring to their small or medium suppliers that they selectively indicate to apply.
The other point of view are limitations the small business will have to do their job:
1.-Terms of Payment 30-120 Days after Invoice Delivery.
2.- No Cash in Advance and No Aviability to give to a third party the legal rights of payment.
3.- Get paid in MX Pesos when Incomes of Company are in USD.
4.- Small Supplier need to get hard loans to survive for the lapse time of the contract.
5.- That small supplier companies are easily replaceable when they fail to do their job for Liquidity issues.
The Law in Mexico about factoring and commercial credit for being financed by suppliers need to change, other hand the new challenge for the Automotive sector specifically is to reach 50-75% of the content of regional manufacturing this means that each car that is manufactured in Mexico is mechanical or electric must contain at least half of specific parts of the vehicle made in the USA , Mexico and Canada according to the new rules of the USMCA or TMEC Agreement that begins on July 1, 2020. Eventually this rule will be beneficial for the economy and I would particularly expect it to apply in the following years to the rest of the components of other industries that to me It would appear to strengthen the economy in all three countries.
