5 signs of 2016’s Grain Merchandising Profitability Vanishing

Last year’s sales have been made, the numbers are great, but the receivables are growing. Will you get paid for the inventory you delivered? When farm margins get tighter receivables and payables become a much larger part of the financial management discussion throughout the agricultural industry. These are five signs that it’s time to focus more on receivables management.

1.       The financial expectations of your customers have not changed to reflect the current market.

The reality is that commodity prices do change quickly and without locking in profitable prices, profits for producers and users of commodities will retreat and put more pressure on liquidity. There are many simple tools that help you have profit based discussions with the producers and users of your commodities.

2.       Your customer is no longer taking your cash discounts for immediate payment.

A 2% discount for a payment in 15 days totals $2,000 on $100,000 in inventory. Financing the same $100,000 inventory position with a bank rate of 5% for 15 days will only cost $208. Astute buyers take the discount and pay the bank the interest.

3. The customer’s bill is growing and there is a resistance to your reasonable ACH program.

New banking technologies allow checks to be deposited without leaving the office, and cash management strategies are now easily automated. It’s time to implement the ACH program you have been thinking about. If a bill isn’t paid within 30 days or a time frame appropriate for your business add the customer to the ACH list. Make sure the appropriate verbiage is added to all of your contracts. If a bill brings a customer’s balance over a preset limit make sure your contracts allow you to initiate an ACH immediately. While it may be a difficult conversation to have, the future conversations will be focused on the customer needs rather than your collection efforts.

4.       The friendly neighborhood banker, fertilizer supplier, seed salesmen is asking about your customer.

If other creditors are fishing for information on your customers, that should tell you something. These professionals have more important things to do than gossip and they are just trying to figure out how you view a particular credit risk. The fact that you are talking about it should say it all.

5.       The discussions have moved from finance and business to family. Make sure you have an individual goal for each customer contact.

Don’t let your customers bury their head in the sand. Make sure you have a specific goal for each customer contact that will translate into a meaningful business discussion. It’s certainly important to talk about family and fun, it’s more important to help your customer base stay focused on profit based marketing. Helping your producers and users of commodities stay viable will ensure your relevancy for years to come.

Our industry is cyclical and this current cycle will require more focus on cash flow management. Please spend some time with your CFO, Accountant, and Banker this week to develop a receivables management program that makes sense for your business.

Learn more about these and other financial red flags to look for in our Mark to Market Accounting Course. Click below to get started: