As I mentioned last time, the hay market is a very interesting one. The nature of the market creates a big imbalance between availability of cash and the need for hay supplies.
For the hay supplier, as the season progresses and demand increases, so does the number of calls you make to collect on overdue invoices. This leads to those tough conversations along the lines of “sorry, we’ll need cash upfront for the next load”.
In my experience, what tends to happen as late payments start to mount is trading businesses become less aggressive at making sales. This occurs as traders become reluctant to provide more credit or they switch to cash terms on the next load. Whilst this is practical and can be the best way to manage risk, it opens the door for the customer to go elsewhere, potentially losing a sale and providing an opportunity to lose a long-term customer to a competitor.
This is most hurtful when the customer is a good credit risk but low on cash reserves – a common affliction of many dairy or livestock businesses who have lumpy cash flow but a good asset base and future sources of revenue.
For the hay buyer, at a time when you’re busy and under pressure with a shortage of available funds, the last thing you need to hear is “find some funds for the next load or we can’t deliver”.
Unfortunately in today’s money market, the days of a quick overdraft extension are long gone. So while you know you will have money come springtime, it’s often very hard to get more from the bank quickly when you need it in the winter. As a result, you end up having to search for a different supplier who might provide terms, but this takes time and doesn’t always land you with the product you want.
So my reading of the situation is that ultimately the supplier of hay would prefer to be able to keep supplying hay so that they can satisfy the demand from their customer, but can’t or they end up with a cashflow issue, even though they know they are pretty likely to get paid eventually.
The hay buyer would prefer to keep buying off their normal supplier but are forced to shop around to find feed whilst they wrestle with the bank to get the cash they need now, but won’t need in a couple of months time.
So how has this situation played out for you over the past few months? If you’re supplying hay, have you noticed yourself reducing supply to customers that you would prefer to continue to support? If you’re buying hay, do you have a supplier you would prefer to deal with but have had to shop around to help you solve a cash shortage? Or is this problem about to hit over the winter?
Let me know if you have thoughts on the above via email kelseym@delaypay.com.au or just give me a call on 0409 117 730 for a chat. Or click HERE to request a callback.
Stay tuned next week for part 3 as I share my thinking on how the suppliers and buyers of hay can work together so both parties get what they need.