Money Mentor: how can I break free from merchant credit?

Question: I’m writing in to seek some guidance on my credit. Each year, despite my best intentions, I let my merchant credit bills build up. I push it out, then by year-end, the pressure from merchants to pay down or significantly reduce the balance is overwhelming and, honestly, it is causing me a lot of stress. I feel like I have so many bad habits now regarding this issue. I’m finding it hard to regain control of my finances and to be. How can I better manage this, and are

there tools or solutions out there to help?

Answer: You’re not alone in this challenge, and it’s good that you’re looking for a way to take control. Merchant credit often feels like a convenient solution, but over time, it can morph into a financial trap. The stress it creates can take a toll on both your finances and your peace of mind.

The good news is, with structured planning and a few key strategies, you can reduce your reliance on merchant credit and build a more sustainable financial foundation. So, let’s tackle your bad habits and regain control of your finances.

Before we dive into solutions, it’s important to understand what merchant credit might be costing you, for example, higher prices for goods compared to cash purchases and interest charges that can snowball over time.

These costs chip away at your profits and can restrict your farm’s growth potential.

Debt-reduction plan

1. Assess your current position.

2. Take stock of all merchant credit accounts, noting: outstanding balances; interest rates (do you know what you’re being charged?); payment terms (eg 30, 60, or 90 days); and critical due dates, especially year-end or post-harvest deadlines.

Develop a cash flow budget

Prepare a 12-month cash flow forecast that includes:

1. Expected income from all farm enterprises (eg beef, sheep, crops).

2. Seasonal income patterns (eg BPS payments, crop sales).

3. Fixed and variable costs from your accounts.

4. Planned capital expenses.

5. Family living costs – are they realistic?

Prioritise payments

Use available funds strategically to manage debt:

1. Target high-interest bills first to save money.

2. Ensure you make minimum payments on all accounts to stay within the agreed credit terms.

3. Use seasonal income peaks to reduce balances (eg milk cheques in summer months, harvest receipts etc).

4. If possible, consolidate debts into a lower-interest rate.

Practical steps

To implement strong financial controls, it’s essential to rigorously track all purchases and payments, ensuring that every transaction is accounted for. Regularly reviewing merchant statements helps verify that prices are accurate and align with agreements.

Keeping cash flow forecasts updated provides a clear picture of your financial position while scheduling monthly financial reviews allows you to monitor spending and identify areas for improvement. Additionally, exploring lower-interest financing options can further optimise your financial management and reduce costs.

Explore options: Merchant credit isn’t your only choice. There are various loans you can take out to finance your farm. For example, Cultivate Loans from the Credit Union, AIB’s Farmer Credit Line, Bank of Ireland’s Stocking Loan or a Term Loan from PTSB. Speak to your bank to see if a loan may be a viable option for you.

Plan purchases strategically: To plan purchases strategically, align significant expenditures with your income cycles to ensure better cash flow management. During profitable periods, focus on building cash reserves to provide a financial cushion for future needs. Utilising forward contracts can help lock in favourable pricing, protecting your budget from market fluctuations. Additionally, explore cooperative buying opportunities to take advantage of bulk discounts and reduce overall costs.

Building long-term resilience: Building resilience involves two key areas: strengthening working capital and fostering financial discipline. Prioritise building an emergency fund to cover unexpected expenses, establish a bank line of credit for added flexibility, and explore off-farm income opportunities to supplement cash flow during quieter periods.

Focus on maintaining detailed financial records to track your progress and set realistic goals. Engaging with farming discussion groups can also provide valuable insights and strategies.

Implementing these strategies will help you be in control of your finances, reducing dependency on merchant credit while setting your farm on a path to growth and resilience.

Noreen Lacey is head of banking with ifac.

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