Payment-Chain Crises

This paper introduces an endogenous network of payment chains into a business-cycle model. Some production orders are paid upfront, while others are settled only after the buyer receives payment from its own customers. When production or fulfillment waits for settlement, liquidity shortages can propagate through the payment network, leave resources idle, and cause a reduction in measured productivity. We bring the model to Costa Rican data linking interbank business payments to the universe of electronic invoices, connecting contractual terms, payment timing, and delivery timing. We identify payment chains: firms that pay suppliers only after being paid by customers. Exploiting an unexpected freeze of buyers’ funds, we find evidence of TFP declines associated with payment delays. We then embed payment chains into a business-cycle model where firms decide to rely on chained payments. Liquidity shocks delay transactions, feed back into aggregate productivity, and generate hysteresis and pecuniary externalities.