Credit Insurance in Mexico

What is Credit Insurance in Mexico?

Credit insurance in Mexico is a contract under which an insurance company, in exchange for the payment of a premium, guarantees a business (the insured) coverage against extraordinary losses arising from non-payment by its clients or debtors.

In practical terms, it is a protection mechanism for credit transactions or installment sales, since it allows a company to transfer part of the default risk to an insurer specialized in credit risks. In this way, the insured shares the inherent risk of its commercial transactions with the insurer.

This type of insurance is not an absolute guarantee against the maturity of a debt; rather, its purpose is to cover financial losses resulting from the definitive uncollectibility of a credit.

In essence, what is protected is the extraordinary and unexpected loss—not the normal losses that are part of day-to-day business operations.

Credit, as a means of exchange, always carries risk, since it combines the element of time with the possibility of default. The insured must decide whether to assume this risk entirely or share it with an insurance company.

Accordingly, credit insurance is an effective tool to protect accounts receivable that may become uncollectible.

How Credit Insurance Works

Legal basis and operation

Article 27, Section XI, of the Law on Insurance and Bonding Institutions provides:

“For the credit insurance branch, indemnification shall consist of the proportional payment of the losses suffered by the insured as a result of the total or partial insolvency of its debtor clients on commercial credits.”

From this provision, two essential elements arise:

1. The debtor’s total or partial insolvency.

2. The non-fulfillment of payment obligations.

On this basis, credit insurance is designed to protect merchants, manufacturers, and companies in general against non-payment of credits granted to their clients, both in domestic and international operations, through indemnification for the losses incurred.

Purpose of Credit Insurance

Direct purpose

Its direct purpose is to protect trade receivables arising from the sale of goods, either in Mexico or abroad, granting the insured seller the possibility of recovering part of the unpaid amount.

Indirect purposes

Beyond asset protection, credit insurance also serves strategic goals:

a) Facilitating sales – by allowing the insured to offer longer payment terms and compete more effectively without requiring strict guarantees such as letters of credit or bank guaranties.

b) Preventing losses – since the buyer’s solvency is assessed before each transaction, which helps monitor and control sales conditions from both financial and legal perspectives.

c) Improving access to financing – as holding a credit insurance policy allows businesses to obtain credit on better terms and in higher amounts.

d) Optimizing business management – by strengthening sales, risk prevention, and access to financing simultaneously.

Coverage Requirements

For the policy to take effect, the debtor must have defaulted on its payment obligations.

The insurance does not cover ordinary losses, but only those exceptional ones resulting from insolvency.

Objectives of Credit Insurance

Key purposes include:

• Indemnifying losses from uncollectible credits.

• Protecting accounts receivable.

• Strengthening the insured’s financial position.

• Reducing the negative impact of economic fluctuations and currency variations.

• Transforming a large uncertain loss into a small certain one (the premium).

• Promoting greater discipline in credit granting.

• Supporting the management and recovery of delinquent clients.

• Serving as a tool to foster exports.

Special Considerations

Credit insurance falls under the category of property and casualty insurance—specifically, patrimonial. However, it differs in that it protects a receivable against non-payment due to insolvency, rather than a tangible asset against physical destruction.

Consequently, it is a business management instrument that does not replace a company’s credit and collections department, but rather complements it, providing analysis, credit reports, and auxiliary collection services.

Conclusion

Credit insurance is an effective protection mechanism against unpaid receivables, while at the same time encouraging both domestic trade and exports. Its inclusion in Mexican legislation reflects the need for mechanisms that strengthen the security of credit transactions and reduce the impact of insolvency on businesses.

How Can We Help?

At UPLAW Abogados | Attorneys-at-Law, we assist companies both in contracting credit insurance and in dealing with delinquent debtors. Our services include:

• Negotiation and contracting of credit insurance policies tailored to your operations.

• Review and drafting of commercial contracts to minimize default risks.

• Legal management and recovery of overdue credits, both through extrajudicial and judicial means.

If your company sells on credit—whether in Mexico or abroad—don’t let the risk of default slow down your growth.

📩 Contact us today at contacto@uplaw.com.mx for an initial consultation and discover how to protect your accounts receivable and safeguard your company’s financial stability.