Current account: Banks use current accounts as their main guide to a farmer's finances. They show how farmers are managing their finances. There is little scope to go over limit with cheques, and also money transfers not going through. A surcharge in the form of higher interest rates further deepens the problem. For farmers that do not start the year with a buffer, the current account could be in the red for the first half of the year. As milk and/or cattle sales are made, the account normally starts to get into black over the summer months.

Merchants/co-op credit: A build-up of merchant and co-op credit is another sign that finances are under stress. The number of months and the amount are key indications to look at. High interest on merchant credit as well has high credit prices do not help farmers struggling to pay.

Other debts: Credit unions, other banks and even credit cards start to be used to fund day-to-day living expenses. Again these can comes with higher interest rates.

De-stocking: When the pressure comes on and farmers realise that money has to be found somewhere, stock on the farm are often sold to meet repayment or day-to-day. Watch if number of stock are falling each year and cash is not increasing

Emotional stress: Farmers react differently to their financial problems. However the pressure can be immense on the farmers and the whole family as they try to make ends meet.

The one message is act early – there is always a solution. You have to take stock of your borrowing and repayment capacity to identify there is a growing problem. If there is a problem schedule a meeting with you accountant or financial advisor to address it.

Key messages to deal with finance problems

  • Keep a close eye for the signs of financial stress in your business.

  • Do a cashflow even for the next few months to get a clearer picture.
  • If you see you financial situation deteriorating, deal with it immediately.
  • Don’t make the situation worse by building up other forms of credit i.e. letting merchant credit rise.
  • Look at all the options which could include restructuring loans, going on interest only, deferring capital expenditure, reducing drawings or identifying other sources of income.
  • Banks will restructure the loans you have with them but are less keen to take on merchant credit or other debts.
  • Banks will respond to a well prepared case showing viability and repayment capacity.
  • Hire purchase companies will negotiate to extend the term of their loans.
  • Have support - the bank representative’s job is to ensure the best possible deal for the bank. You can bring along support to a crucial meeting to level the playing field. It’s a good idea even if you are confident at negotiating.
  • Slow down – farmers have always had the mentality that they want to pay off debt as quickly as possible. Avoid financing farm development out of cash flow. This is one reason farmers are having real problems with their current accounts. Matching the type of asset with the type of debt is an important business tool.
  • A poorly run current account will result in poor bank and credit bureau rating. This can be avoided in most cases.