What Can an SME Do When Clients Don’t Pay?

A Practical and Legal Guide to Prevent and Handle Non-Payments in Mexico

Introduction

Few things are more frustrating for a business than delivering a product or service and not getting paid.For small and medium-sized enterprises (SMEs), every unpaid invoice is more than just frozen revenue — it’s blocked cash flow, ongoing expenses, and often, payroll or supplier obligations that still need to be met.

Late or missed payments are more common than most business owners think. In Mexico, payment culture remains one of the biggest challenges for SMEs. The good news: there are proven ways to prevent non-payments and to recover your money legally and effectively when they happen.

This article explains — step by step — what your company can do before a client defaults and what legal actions are available once payment failure occurs.

🔹 Preventive Steps to Avoid Client Non-Payment

Prevention is always cheaper than litigation. By adopting clear internal policies, SMEs can significantly reduce the risk of bad debt and strengthen their legal position in case of default.

1. Verify the client’s solvency

Before granting credit, know who you’re dealing with. Research your client’s reputation, request trade references, check their credit history and tax ID, and confirm their business address and operating history. A 15-minute background check can save you months of litigation.

2. Always sign a clear, detailed contract

Never start a commercial relationship without a contract.A well-drafted agreement should define the product or service, price, payment terms, late-payment interest, delivery conditions, and jurisdiction in case of dispute.A solid contract is your strongest line of defense in any future claim.

3. Request deposits or partial payments

If your services are long-term or high-value, do not bear the entire risk. Request a 30% upfront payment and structure the rest in milestones or progress payments. This protects your cash flow and helps identify unreliable clients early.

4. Establish internal credit and collection policies

Put in writing your standard payment terms (for example, “net 30 days”), late-payment interest, and possible consequences — such as service suspension. Setting expectations early enforces discipline and strengthens your contractual leverage.

5. Obtain a credit insurance policy

One of the most effective yet underused tools for SMEs is trade credit insurance.This policy allows your company to transfer part of the non-payment risk to an insurer, which compensates losses caused by insolvent clients. Many policies also include credit risk assessment and professional collection services.

💡 Bonus tip: credit insurers often evaluate your client portfolio, giving you valuable insight into your credit exposure and helping you offer safer payment terms.

6. Monitor your accounts receivable closely

Track aging reports regularly, set up alerts, and act early.A simple reminder email or phone call within the first week of delay can prevent the situation from escalating into a full-blown dispute.

Implementing these preventive measures won’t eliminate risk entirely, but they will drastically reduce it — and put your business in a stronger position should legal action become necessary.

⚖️ Legal Actions When Clients Don’t Pay

When a client defaults, Mexican law gives you two main paths to recover your money:extrajudicial (before filing a lawsuit) and judicial (through the courts).Ideally, you should follow both steps in sequence — starting with the friendly approach.

A. Extrajudicial Actions

Formal Demand Letter

This is the first formal step. Send a written notice — ideally with proof of delivery — that includes:

• The total amount owed

• Details of the product or service delivered

• The original due date

• A new deadline for payment

• A clear warning of legal consequences if the debt remains unpaid

This letter creates a legal record of your claim and can later serve as key evidence in court.

Negotiation or Payment Agreement

If the client acknowledges the debt, you may negotiate a payment schedule or sign a debt acknowledgment agreement with guarantees such as promissory notes or guarantors. Sometimes recovering part of the money is better than losing all of it.

Suspension of deliveries or services

If your contract allows it, suspend services until payment is regularized. This commercial pressure often works, especially when the debtor values the relationship.

Assisted collection or activation of credit insurance

If you hold a credit insurance policy, notify the insurer to activate coverage. Many insurers offer professional debt collection services before paying compensation.

B. Judicial Actions

If the client refuses to pay or ignores all attempts, legal enforcement may be necessary.In Mexico, there are three main judicial procedures for debt recovery:

Ordinary Commercial Lawsuit

Used when the debt arises from invoices or contracts without an enforceable instrument. You must prove that the product or service was delivered and that payment was contractually due.

Executive Commercial Lawsuit

A faster and more effective route — but it requires an enforceable title, such as a promissory note, bill of exchange, or check. This process allows the creditor to request asset seizure (embargo) at the start of the case.

Judgment enforcement and precautionary measures

After obtaining a favorable ruling, you can request execution measures such as garnishment, liens, or the registration of the judgment in the Public Commercial Registry to prevent the debtor from transferring assets.

Before suing, always evaluate three factors:

1. Debt amount – Is litigation financially worthwhile?

2. Debtor solvency – Are there attachable assets?

3. Business relationship – Is it worth preserving or terminating?

A lawsuit can take from several months to over a year, so a well-planned legal strategy can save significant time and costs.

💬 When to Negotiate and When to Sue

Not every unpaid invoice should end in court.If the client shows good faith and willingness to pay, negotiation is often the smartest move.But when there’s bad faith, repeated excuses, or clear signs of insolvency, it’s best to act quickly through legal channels. Every week of delay can reduce your recovery chances.

✅ Conclusion: Practical Tips for SMEs

• Document everything: contracts, invoices, delivery receipts, emails, and messages — every detail counts as evidence.

• Act fast: the longer you wait, the lower your recovery rate.

• Set limits: stop extending credit to late-paying clients.

• Use credit insurance as part of your risk-management strategy.

• Get legal advice early: a specialized attorney can draft formal demands, review contracts, and design the most effective recovery strategy.

📞 Facing Non-Paying Clients?

At UPLAW Abogados | Attorneys-at-Law, we help Mexican and international SMEs recover outstanding receivables and prevent future defaults.

We offer:

• Comprehensive legal counsel in extrajudicial and judicial debt collection

• Contract drafting and review to minimize non-payment risk

• Implementation of credit insurance policies and collection systems

• Strategic guidance to protect your assets and cash flow

👉 Visit www.uplaw.com.mx📧 contacto@uplaw.com.mx | 📱 WhatsApp: +52 56 5545 0359

Recover control of your receivables — and protect your company’s financial future.

🧾 Summary

What can an SME do when clients don’t pay?When a client fails to pay, an SME should follow three steps:1️⃣ Preventive action – verify solvency, sign clear contracts, and get credit insurance.2️⃣ Extrajudicial action – send a formal demand or negotiate a payment plan.3️⃣ Judicial action – file a lawsuit if non-payment persists.

Professional legal advice and proper debt-collection management are key to recovering funds without damaging business relationships.

💬 Frequently Asked Questions (FAQs)

1. What should I do if a client doesn’t pay an invoice in Mexico?

Start with a formal written demand for payment. If there’s no response, try negotiation or a settlement. If the default continues, pursue judicial recovery through a commercial lawsuit.

2. How long do I have to sue a debtor in Mexico?

Under Mexican law, the statute of limitations for commercial debts is 10 years, but acting within the first few months maximizes your chances of success.

3. What documents are required to file a collection lawsuit?

Invoices, contracts, proof of delivery, email correspondence, and any payment-related communication — these serve as essential evidence in court.

4. What are the benefits of credit insurance for SMEs?

It protects your company from financial losses caused by client defaults, ensures stable cash flow, and often includes professional collection support or indemnification.

5. When should I sue a client?

When the amount is significant, the client acts in bad faith, or insolvency is evident. In other cases, negotiation or assisted collection is preferable before litigation.

6. Can I suspend services if the client doesn’t pay?

Yes — as long as it’s clearly stated in your contract or terms of service. Suspension is a legitimate tool to encourage payment without immediate legal action.

7. How can a law firm assist in debt collection?

A specialized firm can draft formal demands, negotiate settlements, file lawsuits, and protect your company’s interests. They also review contracts to prevent future defaults.