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WITH THE PRICES OF FUEL , fertiliser , and animal feed and medicine , forecast to rise 15.2 %, 14.6 % and 7.6 % respectively in 2017 , alongside rising inflation costs it ’ s clear that the farming industry ’ s cashflow crisis is set to degenerate further this year . Farmers are already well aware of most strategies to mitigating the problem and aim to keep costs low , but what about some of the solutions they might not yet have considered ? Alex Fenton , CEO and founder of GapCap , explores some of the different options available .
Owning a small business has never been easy but this is particularly true for the farming industry today . With a number of issues driving increasingly severe cash flow deficits , the agricultural industry ’ s concerns have now doubled in the light of Brexit and , more recently , the triggering of Article 50 . With sources of EU funding at risk , farmers must turn to new means of financing to bridge the cashflow gap .
For many , current low farm gate prices - especially for milk – are a key driver of cash flow challenges . Having fallen dramatically since the 2013- 14 high , farm gate prices look set to continue dropping . The weakened pound following Brexit has forced up the cost of imported feed , adding to cash flow problems . With the prices of fuel , fertiliser , feed and medicine for animals forecast to rise 15.2 %, 14.6 % and 7.6 % respectively in 2017 , maintaining cashflow is an increasingly uphill struggle . Indeed , in the sectors that are most effected – cereals , milk and pigs - incomes are dropping sharply .
The Basic Payment Scheme ( BPS ), the biggest of the
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European Union ’ s rural grants and payments to help the farming industry , has been used by many within the agricultural sector to bridge cashflow gaps . However , recently the Chief Executive of the Rural Payments Agency faced heavy criticism for delayed BPS payments to farmers , with some farmers still waiting for their 2015 claims to come through . Delays to BPS pay-outs have put even greater pressure on the sector ’ s cashflow problems . Further , as an EU grant , the continued roll out of BPS may not last long , with some expecting payments to come to end by 2020 now that Article 50 has been triggered .
Meanwhile , consistent long payment terms continue to create cash flow challenges . With some clients offering payment terms upwards of 90 days , many farming businesses find themselves struggling to make ends meet , particularly during times of peak demand – such as Easter .
As a result , farm borrowing has almost doubled in the past ten years . Research from The Prince ’ s Countryside Fund revealed that 17 % of farms face major financial problems ; whilst
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half of UK farms are no longer making a living from farming alone ; and 20 % generated a loss even before accounting for family labour and capital . As debt mounts up , many farmers are forced to further their debt by borrowing privately from family or friends , turn to payday loans , or delay payments to suppliers . Such late payments impact the entire rural economy , from vets to auction markets , the result being the reduction in available work , decreased income and potential staff redundancies .
Traditional finance may promise to be the answer for those struggling with cashflow and debt . However , the volatility of output prices and the seasonal nature of farming means that it is difficult to predict how long depression periods will last - and how much they will cost . Merchant credit , late payments and overdrafts may seem like acceptable short-term solutions , but these methods of financing are not sustainable : not only is the business unable to grow but eventually , patience will run out and demands for payment will roll in .
In order to patch the cash flow gap , many agricultural
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businesses have turned to selective invoice financing . Invoice financing allows businesses to raise cash against their invoices in 24 hours , be it regularly or just as a one-off . In this way , smaller recruitment firms can release cash when need dictates , allowing them to maintain supply to their clients , even during times of spiked demand .
For example , a company that provides arable farmers with innovative solutions to field cultivation problems sought out GapCap - the selective invoice financing company – to help grow their business . The company ’ s primary customer only offered 90-day payment terms , which seriously restricted growth : though keen to manufacture and sell eight machines over the quarter , the long payment terms kept production down to just five machines . But , in providing a flexible finance solution , GapCap helped facilitate the production and sale of eleven machines , allowing the company to exceed revenue projection by 60 %.
With Brexit fluctuations and EU funding at risk now that Article 50 has been triggered , the farming industry needs to think long term . These financial pressures aren ’ t going to go away , and farm businesses need to improve their skills in business planning and financial management . There are a number of online tools that identify and evaluate cost of production and efficiency savings , or business planning training . Equipped with a clearer understanding of how to mitigate cashflow concerns and a knowledge of the different alternative financing solutions available , the agricultural industry will be better able to survive the Brexit storm .
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