Managing cash flow difficulties
Agriculture being as volatile as it is, times will arise when a business can’t meet its suppliers’ credit terms because cash flow is adversely affected.
As noted before, this is not a light matter because there are legal consequences.
Again from experience, by far the best policy is to respect the customer/supplier relationship and talk things through with suppliers.
Where a business has demonstrated a good credit record in the past it would be a hard-hearted supplier who could not accommodate that business, although suppliers are not made of money either and the result of them not being paid is that they will not be able to pay their supplier accounts in turn. Some parts of the supply chain can handle payment delays better than others.
However, non-communication is rarely perceived as a positive way to do business when things get tough.
If balances are drifting out into the 60 or 90-day column the matter always becomes worse more quickly if nobody is talking to the other.
Talk also needs to be backed up. If possible, payments should be made to a creditor even if the balances being paid are old and outside terms. At least this shows a willingness to pay something, with the expectation that the account will be brought up to date when cash flow improves.
Agricultural product suppliers are fully aware that seasonal cash flows mean a customer may have difficulty in meeting credit terms at certain times of the year. Indeed, chemical and fertiliser sellers may offer crop terms for this reason. Regardless of the reason, the potential for exceeding credit terms should be discussed at an early stage with suppliers so that they can consider their own cash flow needs in order to support those of a customer.
Trading whilst insolvent (continued next issue)
See this article in Tree Fruit April 2015
