Those in the agri-industry need to fully review and change their credit terms to get paid on time in a bid to ensure good cashflow and future viability.
That’s according to Sharon Farrell, founder of FACE credit consultancy, a credit management company based in Naas, who works across the small to medium-sized enterprise (SME) sector in which the agri-industry is an important employer, providing work to over 170,000 people.
Outlining the steps those involved in the sector can take to get paid on time, Sharon said that it is one of the industries that traditionally has extended very long credit terms.
This, she contended, is something that needs to change to improve cashflow for all, especially in this period of economic uncertainty.
Agri-industry and money
“The agri-industry has its own particular difficulties around payments and while it’s totally understandable, it’s definitely time for change, as late payments throw up a plethora of problems for all involved in this sector,” Sharon said.
“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 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,” she said.
“If providers are not getting paid in a reasonable timeframe, they’re 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 don’t 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.
“The rising cost of living is really concentrating the minds of those in the agri-industry, and they need the 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 don’t like asking for it.
“It truly leaves people overexposed and very vulnerable financially,” Sharon said.
“Changing behaviours can be very difficult but can be helped with standardisation of processes regarding getting paid on time,” the founder continued.
“Nothing causes pressure in business quite like financial worries, and generally people don’t react or respond well when they are under pressure.
“What should be a simple request around payments can potentially become a battleground and it is all so avoidable.”
Having the conversation from the start
“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,” Sharon contended.
“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.”
According to the founder of FACE Credit Consultancy, the general principles of good credit terms and practice remain the same across all industries.
“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, but I cannot overstate the importance of being absolutely clear and unambiguous from day one. It truly saves untold problems down the line,” Sharon contended.
“If you want strong professional relations with clients, which is paramount, be crystal clear about your credit terms.”
This, she said, saves a lot of potential difficulties down the road, including preventing misunderstandings, delayed payment, maybe no payment, and soured relations.
“Nothing causes bad relations more than misunderstandings about payment,” she added.
“It’s particularly hard on agri-industry start-ups as they can be decimated by outstanding credit and it’s such a shame,” Sharon believes.
“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,” Sharon said.
Top tips
FACE credit consultancy tips on getting paid on time for the agri-industry:
- Unpaid or delayed invoices are a huge drain and cost on your business. Don’t rely on your overdraft facility to run your business. This is costing you money. The current rate of interest for overdrafts is circa 8%. This is a drain on your resources and is eating into your profits;
- The usual 30 days can mean different things to different companies. Is your 30 days from date of invoice or 30 days from month end which is actually 60 days or 30 days from when the customer receipts the invoice?
- Your credit terms should be in line with your business needs and should be determined by you, and not dictated by your customer;
- Analyse your risk of non-payment before offering credit to a new client;
- Credit terms should be reviewed as the business grows or the economy changes;
- Phone calls are the most effective way to collect on outstanding invoices. They are the fastest way to get queries resolved and really can help build stronger customer relationships when done in a confident, calm, and professional manner;
- Keep records of all correspondence relating to collections. These should be dated and as detailed as possible. This is a legal requirement should you need to pursue debt legally;
- Negotiation is a key skill for all credit professionals, and should be used daily to ensure you have a robust contract that has all your terms of sales. This should also include your dispute and returns policy;
- Make sure you have the correct legal entity the company trades under and include this in all correspondence, most importantly in invoices and statements and any letters;
- Be clear about the returns policy as this could be used as a delay tactic by some;
- Be mindful that during a growth period of a business the need for cashflow is higher. Credit terms may need to be renegotiated;
- It isn’t enough to know how much you have outstanding, it’s vital that you know the detail behind those numbers, who owes you money and what is their ability to pay you back;
- Set collection targets. Again these should be in line with credit terms and your business needs;
- The companies that do credit well are the ones that have a strong relationship between the sales team and the credit team. There is nothing worse than a salesperson trying to sell to a customer that is on hold for late payment. Communication is key. Collecting money is in everyone’s interest so all information relation to credit should be shared throughout the business;
- As a professional credit management company, we go in as one point of contact, and this is crucial as it ensures continuity and clarity;
- If you must resort to a legal solution, besides having proof of contract and proof of sale, it is also important to make sure that you have as much written correspondence as possible This is why is we advise you to document every collection conversation. Remember is up to you to prove that the debt is owed, not up to the debtor to prove that is not. I have seen cases thrown out of court because they could not prove they had made a concerted effort to collect the outstanding invoices;
- If you have a good money person in your company, you’ll never want to lose them. A good credit person should have the mind of an accountant and the personality of a salesperson.