Sunday, March 25, 2007

Payments, Invoices and Banking

There is a huge underground economy in Mexico, no invoices, no taxes, no paperwork.

Estimates of the size of the underground economy run as high as 60% of the GNP of Mexico. At some time you will be confronted with a person or business who provides services or products and will ask if you want an invoice or not…..with a difference of 15% in the final cost if you chose to avoid the invoice (no invoice = not tax deductible).

This 15% is the I.V.A. (national value added tax). Avoiding the I.V.A. is illegal. Estimates of the size of the underground economy run as high as 60% of the GNP of Mexico.

Sending checks as payments through the mail is virtually unknown in Mexico. Due to the problems with mail theft and fraudulent checks, the majority of business checks are hand delivered.

There are an army of men and women, who physically go to customer’s offices, drop off the invoices, and come back for the payment check at a later date. Totally inefficient in terms of costs and time, however that’s the way the system works in Mexico.

Electronic payments and funds transfers have begun to appear in the last 5 years, and the larger companies are now using this system for payments and receivables. There is a very large percentage of Mexican businessmen who are not confident of the security and password controls (there have been numerous cases of e-bank fraud).

It is necessary to physically appear in your bank to make routine deposits, withdrawals, changes or modifications to your accounts. This seems odd to foreign business people.

The banking system in Mexico depends heavily upon providing personal identification for each transaction, and it is highly recommended to establish a relationship with your bank officials and tellers in order to facilitate business.

The ATM banking machines are becoming part of everyday life for all Mexicans, and direct payroll deposits to employees accounts are now very common among medium and large companies.

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