In this news article, Sharon Farrell, founder of FACE Credit Consultancy, flags why the agri industry needs to overhaul the way it manages its credit facilities.
Workers in the agri industry have to fully review and change their credit terms in a bid to ensure good cash flow and future viability.
It is one of the industries that traditionally has extended very long credit terms, and this is something that needs to change to improve cash flow for all, especially now we are in a period of some looming economic uncertainty.
The agri industry has its own particular difficulties around payments, and while it is totally understandable, it is definitely time for change as late payments throw up a plethora of problems for all involved in this sector.
Traditionally, farmers draw down their grants in December, and many who work in the sector may have been contracted to work or provide machinery in the previous February, for instance.
In essence, the work has been done, and suppliers may be left waiting for up to ten months to be paid.
This is not workable for all parties, and it is best practice to discuss and agree on credit terms in advance of work commencing.
This helps reduce the risk of contractors seeking different forms of debt or eating into any savings or assets.
If providers are not getting paid in a reasonable timeframe, they are actually offering clients a loan which is costing them dearly.
They are paying the interest as they may have to dip into overdrafts and as we know, the 8 % interest rate on these facilities is punitive.
Also, when farming contractors do not get paid, it has severe and real knock-on consequences as perhaps they may not be in a position to pay their suppliers and on and on it goes.
Getting paid on time
The rising cost of living is really concentrating the minds of those in the agri industry, and they need guidance and know how to overcome the huge problems that late payments cause.
People are reticent to discuss money matters; they all know they need to and deserve to be paid on time; they just do not like asking for it. It truly leaves people overexposed and very vulnerable financially.
Changing behaviours can be very difficult but can be helped with the standardisation of processes regarding getting paid on time.
Nothing causes pressure in business quite like financial worries, and generally, people do not react or respond well when there are under pressure.
What should be a simple request around payments can potentially become a battleground, and it is all so avoidable.
We have a new generation of farmers now, and we need to make it acceptable to have the conversation around money with clients and service providers from the very start.
It has to be a normal and expected part of the business. Expectations need to be met on both sides. Being clear and upfront is the best way of doing business in the long term.
The general principles of good credit terms and practice remain the same across all industries and I am a passionate advocate of being direct, upfront and clear about finances from the very outset.
Being direct about credit terms is so much easier in the long term.
I totally understand how businesses can be loath to broach the issue of credit terms, as they are so happy to have received the business.
Still, I cannot overstate the importance of being absolutely clear and unambiguous from day one. It truly saves untold problems down the line.
If you want strong professional relations with clients, which is paramount, be crystal clear about your credit terms.
This saves a lot of potential difficulties down the road. It prevents misunderstandings, delayed payment, maybe no payment and soured relations.
When things are defined, it is far easier, and people generally feel much ‘safer’ around others who are direct. Nothing causes bad relations more than misunderstandings about payment.
It is particularly hard on agri industry start-ups as they can be decimated by outstanding credit, and it is such a shame.
The credit function should support growth in your business and not put your business under financial pressure.
It is all so avoidable. Do your due diligence before you enter into any agreement with potential clients, and ask the right credit questions at the point of sale.
Professional credit management should fit seamlessly into a company. It focuses the mind on ensuring it is running smoothly, and finance is an inherent part of this”.
Cashflow is the lifeblood of every business, and lack of it can strangle otherwise viable businesses and given the agri industry is such an important part of the Irish business landscape, I really urge them to review their credit terms as a matter of priority.
In another article, we will share FACE Credit Consultancy’s tips for the agricultural industry.
Farrell runs a credit management company based in Naas, who works across the SME sector, of which the agri industry is an important employer providing work to over 170,000 people.