A cropping business can have a valuable crop in the paddock and still have supplier bills due now.
That timing problem is common in seasonal agriculture.
Around Dimboola and the wider Wimmera, businesses can have money committed to fuel, fertiliser, chemicals, seed, repairs, freight, contractors and other operating costs months before the income from the crop is finally received.
By the time harvest approaches, the business may know that income is coming.
The problem is getting from here to there without exhausting the cash available to run the operation.
When Supplier Bills and Farm Income Do Not Line Up
Agricultural businesses rarely receive income at exactly the same time their expenses fall due.
A supplier may want payment this month.
Harvest income may arrive next month or later.
Grain may still need to be harvested, delivered or sold.
A contractor may need to be paid before the farm has received the proceeds from the season.
That can create a temporary working-capital requirement even in a business that is performing well.
The first step is working out whether the gap is genuinely seasonal.
If there is a clear source of incoming funds and the pressure is primarily caused by timing, a seasonal working-capital facility may be worth considering.
If the business is continually short of cash regardless of the season, the underlying position may need a broader review.
Paying Suppliers Early Can Sometimes Have a Commercial Benefit
Not every supplier payment is simply a bill that needs to be cleared.
There can be situations where a supplier offers an early-payment discount, better pricing or more favourable terms for paying sooner.
That can create an interesting finance decision.
Should the business use its own cash?
Should it wait until the normal due date?
Or could funding the payment earlier make commercial sense?
The answer depends on the numbers.
If a supplier is offering a meaningful discount, it is worth comparing the actual saving with the cost of the finance required to access it.
Borrowing $100,000 to save $500 would be a very different proposition from a genuinely valuable discount or pricing advantage.
Finance should support the commercial benefit, not erase it.
Do You Really Want to Empty the Operating Account?
A business may have enough money to pay a major supplier account and still choose not to use all of it.
That can be particularly relevant before harvest.
Cash may still be needed for diesel, wages, contractors, repairs, tyres, freight and unexpected expenses.
Paying a $70,000 supplier bill from available cash may solve today’s problem while leaving very little buffer for the next six weeks.
Working capital may provide another option for an eligible business that wants to preserve more liquidity through the seasonal peak.
The important question is not simply:
Can we pay this bill?
It is:
What will be left in the business after we pay it?
Should You Sell Grain Just Because Cash Is Tight?
Cashflow pressure can also influence when a grower chooses to sell.
There may be circumstances where a business needs cash quickly and selling grain provides that cash.
But the timing of a sale should ideally be a commercial decision rather than one forced purely by an immediate supplier bill.
Working-capital finance may be worth investigating where a short-term funding gap is creating pressure to convert stock or grain into cash sooner than the business otherwise intended.
That does not mean finance should be used to speculate on future grain prices.
There is no guarantee that holding grain longer will produce a better price.
The point is simply that short-term cashflow pressure and the decision about when to sell are two separate issues.
A business should understand the cost and risk of both choices.
Fuel Can Become One of the Biggest Harvest Cash Expenses
As harvest activity increases, so can fuel consumption.
Machinery is running longer.
Trucks are moving more frequently.
Contractors may be working across extended hours.
For transport and contracting businesses, fuel costs can also be incurred well before customers pay their invoices.
A business may therefore need significantly more operating cash during its busiest period than it does during an average month.
This is one reason seasonal funding should be considered before the bank account is already running low.
Knowing the expected fuel requirement, payroll, supplier bills and other major expenses can provide a much clearer picture of how large the temporary cashflow gap might actually become.
One Seasonal Loan After Another Can Become Expensive
Some businesses find themselves arranging short-term funding at the same point every year.
The facility is repaid.
The next season arrives.
Another cashflow gap develops.
Another loan is arranged.
If the requirement is predictable and recurring, it may be worth asking whether a more suitable seasonal or revolving working-capital structure could be considered instead.
The objective is not to keep a business permanently in debt.
It is to match the type of finance with the way the business actually operates.
A recurring seasonal cash cycle may deserve a different structure from an unexpected once-off expense.
Existing ATO Debt Can Make the Seasonal Gap Harder
ATO debt can also compete with supplier payments and harvest expenses.
A business may be making payments towards an existing tax debt at the same time as fuel, contractors and suppliers need to be funded.
That can place pressure on cash even before anything unexpected happens.
Adding another short-term loan may provide cash temporarily, but it can also add another repayment to the same problem.
Where ATO debt is material, it can be useful to look at the tax debt, existing business facilities and seasonal working-capital requirement together.
Depending on the circumstances, refinancing or restructuring may be worth exploring.
Any new structure needs to be assessed carefully. Moving debt does not automatically mean the business will pay less or be better off.
When Customers Owe the Business Money
For agricultural contractors, freight operators and businesses supplying services into the harvest sector, the problem may be different again.
The business may already have earned the money.
It just has not been paid yet.
If a substantial amount is sitting in eligible business invoices, debtor or invoice finance may be worth considering rather than relying entirely on a general working-capital loan.
The distinction matters.
A cropping business waiting for the proceeds of grain sales may have a seasonal working-capital requirement.
A transport business waiting on 30-day customer invoices may have a debtor-funding requirement.
The finance should reflect where the cash is actually tied up.
Know How the Seasonal Funding Will Be Repaid
Before taking on working-capital finance, have a clear repayment plan.
What income is expected?
When is it expected?
How much of that income is already committed elsewhere?
What other debt repayments are running?
Will the facility be repaid after harvest?
Or does the business need an ongoing limit that rises and falls with the seasonal cycle?
The amount borrowed should also relate to the genuine requirement.
If the forecast gap is $80,000, borrowing substantially more simply because it is available can create unnecessary interest and temptation to use the money elsewhere.
A defined purpose makes seasonal finance much easier to manage.
Plan for the Gap Before It Becomes an Emergency
The best time to look at harvest cashflow is usually before suppliers are overdue and the operating account is almost empty.
A simple forecast of expected income and major outgoing payments over the next few months can expose the pressure point early.
For agricultural businesses around Dimboola, that may include supplier accounts, fuel, contractors, freight, wages, repairs and existing finance commitments.
Thrive Broking can assist businesses considering seasonal working capital, supplier funding, debtor finance and broader business debt requirements.
If you can see a gap developing between the bills that need to be paid and the income expected from harvest, speak with Thrive Broking before the pressure becomes urgent.
We can look at what needs to be funded, how long the gap is expected to last and the available finance options so the business can make its seasonal decisions with a clearer view of its cash position.