A cropping business can be heading towards a good harvest and still feel short of cash.
That is one of the realities of seasonal agriculture.
The money required to grow, harvest and move a crop is often spent well before all of the income from that crop reaches the bank account.
Around Nhill and the wider Wimmera, where grain production is a major part of the agricultural economy, the weeks leading into harvest can bring some of the largest operating expenses of the year.
Fuel needs to be purchased. Contractors and employees need to be paid. Machinery needs servicing. Freight and transport costs increase. Supplier accounts continue to fall due.
The question may not be whether the farming business is profitable.
It may simply be how to fund the gap between paying those costs and receiving the income.
Seasonal Cashflow Does Not Always Follow the Calendar
Agricultural cashflow is rarely even from month to month.
A business may spend heavily through planting, growing and harvest before receiving the bulk of its income later.
That can create periods where there is substantial value sitting in the crop, but much less cash sitting in the operating account.
Harvest can intensify that pressure.
Instead of slowing down, expenses can increase just as the business is waiting for the crop to be harvested, delivered and sold.
This is where seasonal working capital can become relevant.
Rather than funding a specific truck or machine, working capital is about having enough liquidity available to continue operating while the normal business cash cycle catches up.
What Does the Business Actually Need to Fund?
Before looking at finance, it helps to understand where the cash is going.
For a cropping business, the requirement may include:
Fuel
Wages
Harvest contractors
Freight
Repairs and servicing
Tyres and parts
Supplier accounts
Insurance
Storage costs
Existing business loan repayments
ATO commitments
Other operating expenses
The requirement may last only a few weeks or several months.
That matters.
A temporary seasonal gap should not automatically be treated the same way as a long-term cashflow problem.
The finance structure should match the reason the money is needed and the expected source of repayment.
Paying Suppliers Before Harvest Income Arrives
Supplier bills do not necessarily line up neatly with harvest proceeds.
A farm may have accounts relating to fertiliser, chemicals, seed, fuel, repairs or other inputs falling due before enough crop income has arrived.
That can create a difficult choice.
The business can use most of its remaining cash to clear suppliers, or it can look at whether short-term working capital could provide additional breathing room.
There can also be situations where paying a supplier earlier creates a genuine commercial advantage.
A supplier may offer better pricing or an early-payment discount.
If the saving is meaningful, the business may want to compare the benefit of paying earlier against the cost of using finance to do so.
The numbers need to make sense.
Borrowing simply because a discount exists is not automatically worthwhile.
But where the commercial benefit exceeds the funding cost and the business has a clear repayment pathway, it may be worth investigating.
When Fuel Becomes a Major Cashflow Expense
Harvest can consume a significant amount of fuel.
For farming businesses, contractors and grain transport operators, diesel expenses can increase quickly as machinery and trucks operate for longer hours.
Those fuel costs are generally paid well before all of the income generated by the work has been received.
A transport operator can have trucks running every day while waiting weeks for customer invoices to be paid.
A contractor can be working through a busy schedule while wages, fuel and repairs are coming out of the bank account now.
The busier the business becomes, the larger that timing gap can become.
That is why strong trading activity does not always translate into strong day-to-day cashflow.
Waiting on Invoices Is a Different Problem
For agricultural contractors and transport businesses, the cashflow gap may not be caused by the seasonal crop cycle.
It may be sitting in the debtor ledger.
Work has been completed.
Invoices have been issued.
But customers have not paid yet.
If eligible business invoices are responsible for the gap, debtor or invoice finance may be worth considering.
This can be different from taking out a general-purpose working-capital loan.
The funding is linked to qualifying invoices and the money already owed to the business.
Whether debtor finance is suitable will depend on factors such as the type of customers being invoiced, the debtor ledger and the lender’s requirements.
The important thing is identifying whether the business needs more debt generally or simply needs faster access to cash already tied up in invoices.
Should a Seasonal Facility Be Organised Before It Is Urgent?
One of the problems with seasonal cashflow is that businesses often wait until the account is already under pressure before looking for finance.
By then, supplier payments may be overdue, ATO obligations may have accumulated or short-term funding may already have been used.
Planning earlier can provide more options.
If a business regularly experiences the same cashflow cycle every year, it may be worth considering whether an appropriate seasonal or revolving working-capital facility would make more sense than arranging a new short-term loan each time the pressure appears.
Some businesses may only need a once-off facility.
Others have a recurring seasonal requirement.
The right approach depends on the business, the amount required, how long it is needed and how it will be repaid.
What If There Is Already ATO Debt?
Seasonal pressure can become more difficult when there is already ATO debt in the background.
The business may be meeting an existing payment arrangement while also trying to fund harvest.
That can reduce the cash available for normal operations.
In this situation, taking another short-term loan without considering the existing debt may simply create another repayment.
It can be worth looking at the broader position.
Depending on the circumstances, that could involve reviewing the ATO debt, existing business facilities and working-capital requirement together.
The objective is not simply to move debt around.
It is to understand whether the current structure is contributing to the cashflow problem.
Business Debt Secured Against Property
Some agricultural businesses also have business debt secured against farm or residential property.
That may have been appropriate when the facility was established.
But businesses change.
Debt builds up.
Equipment facilities are added.
Short-term finance may be used during difficult seasons.
Eventually, the structure may look very different from where it started.
If a business is seeking more working capital before harvest, it can be a useful time to review what debt already exists, what security is being used and whether the overall structure still makes sense.
Refinancing does not automatically create a better outcome.
Any restructure needs to be assessed on its own merits, including costs, terms, security and repayments.
Do Not Borrow More Than the Seasonal Gap Requires
Working-capital finance should solve a defined business problem.
It helps to work out:
How much money is actually required?
What expenses will it cover?
When are those expenses due?
When is income expected?
What existing repayments are already running?
Will the facility be cleared after harvest or remain in place?
Is this a one-off requirement or something that occurs every year?
Those questions can help distinguish between a temporary seasonal gap and a deeper cashflow issue.
If the business regularly needs new debt just to meet normal expenses, the underlying position deserves a closer look.
If the requirement is genuinely caused by the timing between seasonal expenditure and incoming revenue, the conversation is different.
A Good Harvest Can Still Need a Cashflow Plan
Agricultural businesses around Nhill can have plenty happening operationally while cash remains tight.
That does not automatically mean there is something wrong with the business.
Seasonal agriculture naturally creates periods where expenses arrive before income.
The important thing is recognising that gap early enough to consider the available options.
Thrive Broking can assist businesses looking at working-capital finance, seasonal funding, debtor or invoice finance and broader business debt requirements.
If you are around Nhill and harvest expenses are building before the income arrives, speak with Thrive Broking before the cashflow gap becomes urgent.
We can look at what needs to be funded, when money is expected to come back into the business and whether an appropriate finance structure may help bridge the period in between.