Advice for farmers who are struggling to pay their bills

An unexpected bill or two at the wrong time of year can be enough to push some businesses into financial difficulties, and the result can be unpaid debts.

The solution involves knowing how to deal with intimidating letters and often making some tough business decisions.

Farmers Weekly spoke to lawyer Rob Tiffen, a senior associate in the dispute team at Birketts solicitors, and Hamish Bichan, director at consultancy business Active Business Partnerships, for guidance on what farmers should do if they find themselves in this situation.

See also: Help and advice for farmers facing hardship

Face the problem head on

The most important piece of advice for farmers who find themselves on the receiving end of late payment demands is not to ignore the problem.

Assuming that you accept that money is owed, it is much better to approach suppliers to try to work out a payment plan, than to refuse to take their calls and hope the problem goes away.

Aggressive letters threatening legal action need to be taken seriously, but there are different stages to the debt recovery process, and nothing will happen overnight.

Also, no business wants to get into a legal fight if it can avoid it, and where there is a long-standing trading relationship, most businesses will want to try to resolve the situation without resorting to court proceedings.

However, going into these discussions, it is important to have all the facts at your fingertips, so you know exactly where your business stands. For example, identify exactly when each payment was due – particularly if the deal was agreed verbally.

Farm Community Network

The Farming Community Network supports farmers and farming families who are struggling to make ends meet.

Help can include support with paperwork, building relationships with bank managers, acting as family mediators, and even supporting farmers through legal issues.

FCN also provides facilitation and direct links to sympathetic professionals and other farming charities which offer financial support.
If you are struggling financially and would like someone to talk to in confidence, call the FCN Helpline on 03000 111999 or email The helpline is open every day of the year from 7am-11pm.

The legal process

If you are operating as a sole trader or partnership, as is most commonly the case in the agricultural sector, then creditors are likely to threaten to seek a County Court Judgement (CCJ) if you refuse to pay.

If the debt is for more than £5,000 then the creditor has the right to present a bankruptcy petition to the court, but suppliers in the agricultural sector usually view this as a last resort.

Creditors are now required to follow a pre-action protocol for debt recovery before they seek to take matters to the courts.

This protocol, introduced in 2017, is designed to encourage parties to reach a settlement through negotiation and runs in the following order:

  1. The creditor issues a “letter of claim” setting out the details of the debt, giving the debtor 30 days to respond.
  2. The debtor is expected to use the reply form to request time to pay or notify the creditor that debt advice is being sought, request copy documents or dispute the debt. If the debtor wishes to seek debt advice, the creditor must allow a reasonable period for the debtor to do so.
  3. If the debtor replies to the letter of claim, the creditor should not issue court proceedings within 30 days of receiving the reply.

However, if the matter cannot be resolved through the pre-action process then the creditor can then apply to the courts for a CCJ and the following will happen:

  • The debtor is sent a claim form and given 14 days to respond, unless they submit an acknowledgement of service form which extends this time frame to 28 days. Once this deadline is up, their choice is either to admit the debt, or to challenge it.
  • If admitting the debt, a debtor will be required to fill out a form which asks for details of their income and there is another opportunity to propose that the outstanding sum is paid in instalments.
  • The creditor can either accept that proposal or make representations to the court for an alternative and the decision will be made by the judge at the hearing. If a debtor wants to mount a defence against a request for a CCJ this will also need to be heard in front of a judge.

At any stage in the court proceedings there is nothing to stop the debtor paying off the debt, should cashflow allow, or coming to an alternative agreement with the creditor.

Consequences of CCJ

If a creditor is successful in getting a CCJ, then the consequences are serious. Not only will it wipe out any credit rating, they can enforce it by sending high court enforcement officers to the farm who can seize assets to value of the debt.

However, they are not allowed to seize any assets that are regarded as legitimately needed for the business to keep trading.

They are also unable to seize any machinery that is subject to a finance agreement as the farmer does not own the asset.

It is also worth noting that failure to pay a tax bill can result in criminal sanction, whereas failure to pay a bill as part of a trading relationship is regarded as a civil matter.

Seeking solutions

Most suppliers will give serious consideration to a request for a payment plan to be put in place which would spread smaller payments across a number of months – particularly where you have a longstanding relationship with them.

Equally, growers who owe a merchant for inputs may be able to agree that they will sell their grain to the same supplier and offset any outstanding amount against their grain sales.

It is vital to document any such agreement and set out clearly the basis on which grain or other supply will be priced.

Accurate management information

One of the first steps for farmers who find themselves in this difficult position must be to create an accurate cashflow picture – looking up to 18 months ahead – to allow informed decision-making.

This should be complemented by a two- or three-year business plan and budgets, which can help to identify the profitability of each different enterprise and where steps might need to be taken to improve business performance.

It can be difficult to think straight in these situations, so ideally this work should be done by someone independent, with the skills to objectively track cashflow trends and check whether there are any forgotten outstanding payments.

This process can be carried out by a consultant, who will understand the practical aspects of running the business and the implications for cashflow.

If things are particularly serious, it may also be worth considering involving a licensed insolvency practitioner specialising in agriculture, who can advise if a business is insolvent and what steps can be taken to avoid insolvency.

Seeking additional lending

Farmers looking for emergency finance measures from their bank can find them helpful – but only if they supply accurate information to help the bank come to a lending decision.

If a farmer who requests money to pay a bill can demonstrate they have thought through how that debt will be repaid, they are much more likely to get a favourable response.

Banks will typically be looking for profits, after drawings and tax, to be at least 1.25 times any capital and interest charges.

Farmers may need to consider selling off assets such as land or machinery, but if a cashflow deficit has arisen because of more fundamental problems with the trading business then these problems need to be addressed or the problem will re-emerge at a later stage.

Tenant farmers without the option to put up land for security will find it harder to raise short-term finance.

They may need to look at ways to restructure to their operations to achieve economies of scale and reduce costs – for example, by collaborating with others as part of a joint venture.

Household bills

Farmers who are also struggling to pay household bills should focus on what are called priority debts, which include mortgage repayments, rent, gas and electricity debts, council tax, court fines, income tax and payments such as child maintenance.

Failing to pay non-priority debts, such as credit card loans, is usually viewed as less serious than not paying a priority debt, although the creditor may choose to seek a CCJ.

As with business suppliers, you should contact each priority debt creditor to speak to them about your debt.

You’ll need to talk them through why you’re in debt, how you’re sorting out the situation and how much you can afford to pay them each week or month.

You’ll probably have to answer questions about what other debts you have, and whether your situation is likely to get better or worse.

They could ask if you’re likely to get more money coming in from work or benefits, for example. They might also ask what you’re doing to reduce your spending or increase your income.

More information can be found on the Citizens Advice website.