04/26/2018

How Seed Distributors can Improve Cash Flow (Even in a Slumping Farm Economy)

Greg Gillespie April 26th, 2018

In agriculture, there’s no question that success rests on the weather, the markets and access to capital. If one of these factors comes up short, producers struggle to cover expenses and make a profit.

For the past five years, producers everywhere have struggled to make up for down markets in both corn and soybeans. Corn prices, which tumbled down from their profitable $7 to $8 per bushel perch have been lagging in the $3 to $4 region. Soybeans haven’t dropped quite as far, but down prices are still taking a bite out of farm profits.

What really paints a stark picture is farming income: After peaking at $123 billion in 2013, in February, the U.S. Department of Agriculture posted bleak projections for the fall of 2018, at $59.5 billion.

As a result, producers are donning their green visors and sharpening their negotiation skills so they can meet the ongoing demands of debt obligations and inputs (which are also on the rise). Even though corn and soybeans are still going into the ground, seed companies are feeling the pinch. Producers want nothing less than the best value for their dollar.

Tough times make it easier to walk away from the personal relationships forged between producer and seed representatives in search of better prices. This forces distributors to sharpen their pencils and postpone price increases that would help the organization meet its own expenses and profit forecasts.

Distributors are pushing harder than ever to get their products into the ground, but the year 2018 is expected to bring fewer opportunities to sell. The U.S. Department of Agriculture forecasts 2.14 million fewer corn acres will be planted in 2018, with nearly 1 million fewer acres of soybeans planted.

Surviving the slump means distributors must adopt more efficiencies

Without a doubt, challenging markets create a significant obstacle to increasing sales, which is the main source of income. When farmers tighten their belts, it’s also a challenge for distributors to meet their annual growth objectives. Amid down markets and struggling sales, successful leaders understand this is a key time to take a smart look at the organization and start working the levers of stocks and cash.

Unlike some goods, seed does not have an unlimited shelf life. If it isn’t sold and planted, that’s a loss for the distributor. Now with fewer acres to plant in the U.S., a nimble distributor would respond by creating the right sales and pricing strategy to get as much of the seed stock into the ground as possible.

Financial leaders and their teams must use this time to identify new opportunities to make the organization run more efficiently and cost effectively in order to boost cash flow and working capital. Adding to the challenge of the business model is the seasonal nature of the business. There’s just a brief window of time when much of the annual income is earned in. This income must cover a year’s worth of operating expenses, not to mention the costs to produce and procure seed product for the upcoming sales season. Steering clear of high debt loads and preventing a too-high negative cash flow are both key to survival.

One way to better manage cash flow is to accelerate payment collections and streamline accounts receivable management in both the field and in the back office.

Improve cash flow with the same tools that are trusted by financial institutions

It’s not unheard of for seed distributors to receive a significant portion of their annual revenues from paper checks, and it’s a nearly universal practice for field representatives to personally collect these checks from the farmer.

Leading seed providers have already turned to technology to solve a lot of a number of challenges and gain a competitive edge in many areas – except for when it comes to gaining efficiency in their accounting processes.

In an age where many technology providers are touting their latest high-tech inventions with all the bells and whistles, it’s difficult to identify a practical, easy-to-use options that deliver on the promise to get the job done.

Distributors need not re-invent the wheel in their search for the right digital tools to help streamline payments. The smartest choice is to turn to the same solutions that are trusted by financial institutions — and that’s no small thing, because safe and reliable cash management systems are foundational to the industry. Many of the tools used to manage cash and deposits by banks are now widely available to today’s corporations.

Making investments to put portable check processing capabilities into the hands of field representatives enables them to process paper payments on-site with a smartphone or tablet, or back at the office with desktop check scanners. Once checks are scanned, field reps can match each payment to the correct invoice, speeding up the reconciliation process.

Seed distributors can quickly see a drastic reduction in float time that’s associated with more traditional manual processes that begin with the field representative mailing paper payments to the accounting department. By eliminating several labor-intensive steps in the process, seed companies have the potential to achieve up to 95 percent straight-through processing.

Distributors can learn about how solutions like these can help eliminate a multitude of manual processes that stand in the way of improved access to working capital and better overall financial health during our webinar on May 3. Click here to register now.

This content is accurate at the time of publication and may not be updated.