Full access to Entrepreneur for $5
Subscribe

What happens to my company's debt if I am in an overdue portfolio?

Everything you need to know about the past due portfolio and how it affects your company.

By
This article was translated from our Spanish edition. Opinions expressed by Entrepreneur contributors are their own.

The economic impact of the pandemic reached all sectors, but without a doubt, business has been one of the most affected. According to Inegi, 91.3% of the companies in Mexico were affected.

Tim Gouw vía Unsplash

In this sense, despite the efforts made by financial institutions, such as the payment deferral program and loan restructuring, many companies saw their payment possibilities limited and entered the past due portfolio .

“The overdue portfolio is when a payment obligation is in default for more than 90 days at the bank level. This plays a fundamental role in the financial planning of businesses, since being in an overdue portfolio or having many unpaid debts represents a considerable risk for the liquidity and financial health of a company ", affirms the lawyer Yisroel Cimet, from the Cimet law firm. & Almazán .

According to data from the Bank of Mexico , the balance of the past-due portfolio of loans granted by commercial banks to the non-financial private sector amounted to more than 126 billion pesos in January 2021, this is the highest figure in the last 16 years.

What happens to my company's debt if I am in an overdue portfolio?

The litigant refers that after the 90-day period given by the banking institutions to catch up with the payment obligations has expired, there are three scenarios: the first is that the debt is bought by a collection office, it is about companies that buy the past due portfolio at a lower cost than the total debt and are dedicated to collecting the debts.

Also, he points out, there are overdue portfolio purchase offices, which are not in charge of collecting debts, but act as intermediaries and sell the portfolio to a third party who could be a collection office or even investors, these are the ones that they seek to recover the debt.

A third scenario occurs when an investor acquires the past due portfolio. Debt is more attractive to them if it is backed by real property, whether they try to collect it or go to court to keep the property and then auction it off for a bigger profit.

The foregoing is proof that in Mexico the sector for the purchase and sale of past due loans is a growing market, since banks or financial institutions see in these companies an opportunity to clean up difficult-to-collect debts. While the companies that recover the portfolio are dedicated to developing various strategies to obtain high performance flows from said portfolios.

The overdue portfolio is when a payment obligation is in default for more than 90 days at the bank level / Image: Dylan Gillis via Unsplash

What to do if my debt is no longer with the financial institution that gave me credit?

Whether the debt is in a collection office or in the hands of investors, the ideal is to negotiate, either a discount in exchange for meeting the payment or restructuring the debt.

For this it is important that companies have the advice of a financial lawyer, since this specialist has the experience and knowledge to reach a favorable negotiation according to the payment possibilities of the business.

However, the key for a company to have healthy finances is in the prevention policy. In the same way, a financial lawyer who provides permanent advice is vital to guide the company in the proper management of resources, negotiations, credit applications and even in the criteria to grant credit for clients and that in this way the debts are collectible. .

Customers stop paying too

Another of the great challenges that companies face comes at the moment of charging customers; however, they must carry out a cost-benefit analysis to know if it is feasible to send their clients' debt to an overdue portfolio or if it is possible to look for other payment alternatives.

One of the benefits of 'bad' debts is that the Income Tax Law (ISR) allows deductions on these losses, as long as it is an overdue portfolio and “is registered as such in the accounting institution of the credit or the auxiliary credit organization, at the time of its sale ”, as indicated in chapter 11.2 On the sale of past due portfolio contained in the Tax Miscellany 2020.

It should also be noted that non-payment by customers can have legal consequences that are disputed in court and result in a seizure or loss of property.