How farmers and contractors can pursue poor payers

Managing cashflow is an ever-present challenge.

Late payments add an extra complication, and with customers under financial pressure, farmers can find themselves spending more time chasing what is due to them.

Struan Kyle, a senior accountant with Dodd & Co, says that when preparing farm accounts it is not unusual to find substantial amounts overdue by more than one month, and in some cases up to six months.

See also: How to safeguard against internal fraud on farms

Larger businesses such as grain buyers, milk buyers and auction markets tend to make payments within 30 days of the supply and rarely stray from the set terms, he notes.

“Often the poorer payers are fellow farmers when farmers are selling their goods and services to others, where the payment terms are in reality set by the customer.”

While they may pay in the end, it is often months after the goods were delivered or the supply took place.

“With the cost of borrowing still relatively high, the use of an overdraft or loan to fund the cash deficit while waiting for debts to be settled is having a noticeable impact on the farmer’s bottom-line figure and, perhaps more importantly, their ability to reinvest to grow the business.”

Jill Hewitt, chief executive of the National Association of Agricultural Contractors (NAAC), says contractors have traditionally been used by some as if they were a free banking service.

She adds that there are signs that late payments are becoming more of a problem.

“This can be very difficult given the contractor still has all their finance bills to cover for the kit they are using,” she says.

“It can be very frustrating when customers prioritise other bills.”

How to minimise the risks

The NFU’s Callfirst service provides guidance to members on their rights regarding non-payment of invoices, and advises researching potential customers first.

Warning signs that a business might be a debt risk can be identified by using an agency to carry out a credit check.

Agencies can provide one-off reports or a subscription to a monthly service to enable multiple credit checks.

For those you are going to do ongoing business with, repeat the credit check on a regular basis, so you are alerted to any changes in status.

If dealing with a new customer or someone you are worried may be more of a risk, setting a credit limit can help to limit potential losses.

Credit insurance can also be an option.

If the business operates as a company, its accounts can be checked on the Companies House website. Late filings can be an indication of difficulty.

Laura Mackain-Bremner, a partner in the commercial and private client team at law firm Clarke Willmott, specialises in commercial disputes.

She points out there are other obvious ways to avoid debt becoming an issue, such as payment on account or asking for money up front for produce or products.

However, this is often not practical. “If this isn’t an option, it’s important to ensure that your paperwork protects you as far as possible,” she says.

What should the paperwork say?

Laura suggests setting and reviewing terms and conditions (T&Cs) which make to make reference to payment terms so that recovery of money due as easy as possible.

This should include the date on which payment is due, any interest payable if payment is late, and the ability to include legal costs in the debt in case legal assistance is needed to recover outstanding sums.

Another possibility is to include a retention of title clause, meaning you retain title to the goods until they are paid for in full.

Ideally, T&Cs should be provided to the buyer when the contract is agreed, rather than as part of the invoice when the job has been completed.

The NAAC encourages members to use the organisation’s standard T&Cs.

It suggests, ahead of carrying out any work, the contractor completes a front sheet with details of the operation, price and terms of payment, which is then attached to the full T&Cs and shared with the customer.

“Contracting can be one of those businesses where people take on a large contract with very little paperwork,” says Jill. “But if things do go wrong, that can make it hard to sort out.”

How to handle invoicing and reminders

Deal with invoicing promptly and efficiently.

Struan advises sending these as soon as the goods or services are delivered.

“Many cloud accounting software programmes like Xero and Quickbooks can email invoices in a matter of minutes,” he says.

Invoices “lost” by a customer can be mitigated against by sending a monthly statement showing the outstanding debt, as a further prompt to pay.

“Again, many cloud accounting software systems can do this at the click of a button,” he says.

Another strategy to reduce late payments, particularly for bigger jobs, can be to invoice for part payments – upfront and while the service is being delivered.

This is an approach some contractors have adopted, says Jill.

“People are looking for sensible ways to get payments and breaking it down into monthly amounts allows the customer to spread the cost.”

Can you withhold produce?

There are circumstances where it may be possible to withhold further produce or products if payment has not been made.

These are likely to be limited and dependent on the agreement between the parties.

For example, a key question will be whether the written T&Cs allow for deliveries to stop in the event of an unpaid bill.

“If you are considering withholding produce/products or are in a situation where something is being withheld from you, we would advise that you get urgent legal advice to establish your options,” warns Laura.

What are the other options?

Depending on the circumstances, it may also be possible to take steps to wind up or bankrupt the debtor.

This needs careful consideration as it depends on the nature of the debt and the circumstances of the debtor, as the creditor will likely be one of many and may not receive all or any of the outstanding debt if sufficient funds are not available.

The NFU says another option can be to use the services of a debt collection agency which will take a commission.

They are not bailiffs and have no greater legal authority than a friend or family member acting on your behalf.

However, they can commence legal proceedings if required. If a debt collection agency is used, pick one that is regulated by the Financial Conduct Authority, says Laura.