Simon Palmer, director of Smart Funding Solutions, sets out how invoice finance can help fresh produce suppliers cope with long retailer payment terms
Every season, fruit and veg growers and packers pay for plants, seed, labour, packaging, fuel and storage months before a single invoice is settled. Then the produce goes out; the buyer takes 30, 60 or sometimes 90 days to pay; and the business carries that gap on its own balance sheet. In effect, the people with the thinnest margins in the chain are lending money to the people with the deepest pockets, at no interest.
My argument is simple. Growers cannot set the terms the big buyers offer, but they can stop treating the gap as something to survive and start treating it as something to finance properly.
Too many businesses fill the gap the expensive way. They stretch their own suppliers, lean on an overdraft the bank can cut at short notice, or put personal savings in to cover the wage bill in a heavy picking month. None of that is a plan. It works until a wet spring, a poor yield, or one late payment from a large customer turns a tight month into a crisis.
There is a better option. Invoice finance lets a business draw cash against its invoices as soon as they are raised, rather than waiting for the customer to pay. When the buyer settles, the advance is repaid, and the balance comes back to the grower, less the lender’s charges. Because it grows with sales, it suits a seasonal business far better than a fixed overdraft. The busier the season, the more funding is available, which is exactly when it is needed.
It is not right for everyone. It works best where a business sells on credit to established buyers with clean, undisputed invoices. Lenders will look closely at how concentrated the customer list is, how often goods are rejected or credited, and whether contracts allow the debts to be assigned.
For the cost side of the season, other tools sit alongside it. Asset finance can spread the cost of tractors, polytunnels, grading lines and cold stores over their working life. Seasonal and revolving facilities can cover inputs before the first invoice exists. Used together, they match each cost to the right kind of funding instead of forcing everything through one overdraft.
The industry rightly keeps up the pressure on fair dealing and payment terms. But waiting for buyers to pay faster is not a cash flow strategy. The growers who come through hard seasons in the best shape are usually the ones who arranged their funding while trading was good, not the ones who went looking when the account was already overdrawn.
If you are carrying your customers’ credit, put the right funding behind it before the next season starts, not halfway through it.
Simon Palmer is the director of Smart Funding Solutions, a whole-of-market commercial finance broker based in Chester.
