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Written by Gregg Elberg
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Wednesday, 06 February 2008 |
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Word Count: 832 Accounts Receivable Financing- Bueno!
According to Wordreference.com English to Spanish dictionary, the Spanish
word “bueno” has about seven meanings: good, kind, well, nice, considerable as
in a considerable amount of money, gorgeous and real. As used in this article
bueno is used to suggest that if you are in the import or export business,
Mexico is a good country to consider with special opportunities for U.S. traders
and financing available in the form of accounts receivable financing. Your
business can make a considerable amount of money in Mexico.
Mexico has a population of over 103 million people. In January, 2007 U.S.
exports to Mexico were over $10.7 billion dollars and imports from Mexico to the
U.S. were over $15.3 billion dollars. Products traded included food, beverages,
tobacco, lubricants, manufactured goods and machinery. Many U.S. companies have
production and assembly operation in Mexico to meet the challenges of global
competition with Mexico’s lower labor, utility and overhead costs. Compared to
China, Mexico presents less geographic logistical problems with our common
border and relative proximity. Mexico has a highly skilled and hard working
labor force. The Mexican legal system, however, is quite different from U.S. law
where we have a Uniform Commercial Code which has been adopted by all of the
U.S. States to regulate commercial finance transactions. Enforcing agreements in
Mexico can be problematic. Litigation can drag on for years and judgments are
difficult to enforce.
Mexico has a highly evolved and organized legal system. It was originally based
on Greek, Roman and French legal systems; today it more resembles a Latin
American country’s legal system than the U.S. legal system. Mexico has vast
layers of administrative law and a limited body of case law, or “jurisprudencia
definida”. Mexican law now recognizes a variety of security devices which allows
commercial finance lenders to offer accounts receivable financing with
reasonable certainty. To participate in Mexico’s marketplace, it is wise to have
a Mexican legal counsel as a part of your team.
One unique Mexican program is the Maquiladora concept and its privileged status.
Maquila operations involve the importation of foreign merchandise into Mexico on
a temporary basis, where it is assembled, manufactured or repaired and then
exported back to the U.S. or to other countries. The advantages of maquila
operations are savings in operational costs, waiver of import duties,
opportunities to sell goods in Mexico and other legal and tax advantages that
are beyond the scope of this article. Mexico’s maquila industry is a
multi-billion dollar industry in the U.S. - Mexican border. These laws are
business friendly and many small and medium sized firms have increased their
profit margins by manufacturing in U.S.-Mexico border cities.
One example is a fine furniture and wrought iron fabricator based in California
that was having financial difficulties because of high labor costs and
increasing worker’s compensation premiums. These costs were cut in half by
moving production to a maquiladora. Their exponential growth from 30 to 100
employees more than tripled their production and profits. Their sales contracts
specified net 60-day credit terms but actual payments collections were closer to
90 days. Accounts receivable financing facilitated the company’s rapid growth by
providing liquidity from the purchase of the receivables by a commercial finance
company at a discounted rate. Without this cash flow, the company could not have
taken advantage of their sales opportunities or produced their products fast
enough.
The Mexico factoring financing process is similar to accounts receivable
financing in the U.S. A finance company advances about 80% of the face value of
the receivable to business owner. This cash is used to pay for materials, labor
and overhead. When the invoice is paid to the commercial finance company, their
fees are deducted and the balance is returned to the business. In general, a 25%
profit on the merchandise is necessary for the financing to make sense.
The bottom line: for U.S. importers and exporters Mexico offers many
opportunities for successful business operations. Accounts receivable financing
and maquiladoras may enhance their profits. Bueno! Business in Mexico is good.
Copyright © Gregg Financial Services
www.greggfinancialservices.com
Gregg Financial Services is a full service brokerage for commercial finance
companies and banks that fund manufacturers, distributors, assemblers, jobbers,
importers, staffing, service, agribusiness, construction and health care
companies. We shop for the lowest rates and terms. We arrange various types of
financing including purchase order financing; factoring; factoring with an
inventory component; and asset based loans on receivables, inventory, equipment
and machinery. GFS also provides cash flow financing and SBA loans on real
estate and equipment. We work with all industries and can arrange financing
transactions throughout the US and Canada, Mexico, Australia and several areas
of Europe including the UK, Ireland, France, and Poland. GFS arranges funding
from $25,000 to $50 million per month at competitive pricing, and we work to
reduce your financing costs as your company grows. For more information about
GFS, please visit our website:
www.greggfinancialservices.com
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