Non-payment affects the liquidity of micro-enterprises and may, in the long term, create an unfavourable climate for foreign investment.
The year is drawing to a close and the Chilean State has recorded successes in terms of indicators. For example, payment times to public sector suppliers have improved over the last twelve months, although with nuances in the municipalities. Since 2021, local governments have reduced their payment terms by 33.1%. However, they are still lagging behind other institutions.
This is evidenced by the quarterly data collected by the Commodity Exchange (BPC) and the Association of Entrepreneurs of Chile (Asech) between July and September 2024. In this period, the municipalities as a whole averaged a difference of 42.1 days between the date of issue of the invoices and the actual payment date, almost three fewer than in the same period in 2023.
In contrast, other Chilean State entities have shorter payment terms: for example, the health sector (36.9 days), the Armed Forces and Carabineros (31.7 days) and the central government (28.6 days). Likewise, if we analyse other figures, we will see a trend shared with other Latin American countries.
To start with, between July and September, the average payment period for SMEs remained at 41 days, just like in the second quarter. Although it improved compared to the 46 days of the same period in 2023. It is worth noting that the latest edition of Coface's survey on payment behaviour in Latin America highlighted a dual trend.
In 2024, 88% of the Latin American companies surveyed offered payment terms, a figure slightly higher than the previous year. However, the average credit term granted fell from 60 days in 2023 to 53 days in 2024, a trend seen in all the countries surveyed. In fact, the situation is not very different from that seen in Chile.
In this group, Mexico stands out with the shortest credit terms (46 days on average), while Brazil imposes longer terms with an average of 60 days. But perhaps the most relevant fact is that 51% of the companies surveyed indicated that they had experienced late payments.
“SMEs and suppliers run the risk that if they are too demanding with payment, they may lose contracts and the link they have with the executor. Therefore, the cheapest financing consists of delaying payments,” explained Francisco Goycoolea, commercial manager of CFC Capital , to AméricaEconomía .
Faced with this situation, SMEs and entrepreneurs find themselves in a tight spot, because late payments mean less capital and liquidity to operate. A crisis then occurs, because for an SME to function it must “balance its cash flow”. In other words, the company has payment projections and must meet a series of non-negotiable obligations such as the payment of VAT, salaries and taxes, the non-compliance of which “squeezes” liquidity. Therefore, for Goycoolea it is urgent that the deadlines are respected to avoid a risk of bankruptcy.
To achieve this long-term goal, the financial analyst believes that the Chilean State must combat late payments in a dynamic manner. “For example, in Peru, there is a ranking of payers according to deadlines and compliance. This list is used and influences approvals and operations. Now, although payment deadlines have decreased, they are average values, that is, there are values below or above the average,” says Goycoolea.
Therefore, the ultimate goal should not be to reduce the average payment time, but to demand compliance with the original deadlines. “Only in this way can payment flows be organized and companies obtain financing according to their needs,” adds the spokesperson for CFC Capital.
If this problem is not resolved in the long term, Goycoolea warns that it could harm the arrival of foreign investments to Chile and other economies in the region. As more SMEs go bankrupt due to non-payment, the country risk increases and this influences the confidence of investors to establish plans. “If we reduce the risk, obviously the financing options will improve from the point of view of investors,” he adds.
