5 Tactics the Pro’s use to Manage Accounts Receivables

“What? Now I have to collect on the sale!”

Will Secor from CoBank had a tough job this week but did well. He gave the opening keynote on Monday morning to several hundred attendees at the NGFA Country Elevator Conference. Obviously, times are a bit tougher in agribusiness and some of the areas aren’t the most fun topics. Will highlighted the top points from CoBank’s recent Grain Elevator Outlook Report. Below are a few of his points that you might want to pay attention to (even if they are not the most exciting topic at your next sales meeting). I added my interpretations on how they might affect you as an Ag Sales Professional.

Big crops, storage is tight across most corn belt states, carries are back in the market: My interpretation: more bins, more capital needed, longer time between the farmer spending on input costs and receiving payment on their stored crops.
Truck drivers are in short supply and don’t look like it’s improving: My interpretation: freight rates need to go up. If in sales and you arrange freight for your customer, I would start these conversations now. Better to remind a customer of the 12-month discussion you have had with them than to surprise them with a sudden 20% freight increase.
Variable and fixed rate averages have gone up over the last year from the mid 4% range to the mid 5% range.
Delinquent loans remain low at 2%, which is in line with the last 10 years and well below consumer loans. A positive aspect is that land values are holding.
Will’s bigger concern was around the change in Working Capital. It dropped from $165bln to $50bln: My interpretation: money is tighter for secured debt, which will lead to a need for unsecured debt to continue farming. The source of that unsecured debt is you. The feed mill, the ag retailer, seed company, parts supplier, service provider. My recommendation: Get good at managing your accounts receivables.

Times are tough. However, as you can see from some of these observations in CoBank’s report, it’s not the end of farming. For a little perspective on how to prepare for tougher times or how to sell in a tight money (loans, working capital) environment, search your company for someone that went through the late ’70s or early ’80s. Obviously as margins narrow, paying vendors gets tougher. Most of us in the Ag sector sell on unsecured credit. By that, I mean we sell on terms and don’t take a lien on real property. At best, we may get a scribbled signature on the bottom of a delivery ticket that our product was unloaded at the farm that day. In addition, most of us aren’t in the business of enforcing liens, filing legal documents and hauling customers into court. We do those things but they take time, money and typically don’t build the business. We operate in a tenuous position of selling a product or service and expecting payment in 10, 30 or 60 days after the fact. Often backed up by our customer’s word and a handshake.

Keep in mind – A sale without getting paid is called a charity. A business without revenue is called a hobby. So, you have to collect on your sales.

I use the word Pros in the title of this article because if you ever had to go out and collect on an account, you know it takes professional selling skills to get the job done. These are some of the toughest conversations I have had on farm calls or in Ag retailer locations. It’s sensitive and it can be volatile. It can be a downturn in your relationship with this customer or worse yet can bring the relationship to an end. However, it doesn’t have to. It might even be a turning point where you get more involved in their business and help them get better.

Tactic #1: Prepare: Nothing worse than starting the A/R conversation and find out your information is inaccurate. Ag business is often high volume with multiple transactions. It also involves accounting systems that aren’t always the easiest to follow and keep track of. It knocks your confidence and disrupts the rhythm of the conversation when you discover halfway through the A/R conversation, that your info is inaccurate or worse, you can’t explain how you arrived at your numbers. So, get the facts straight. Make sure you have the latest information. Receiving my past due report on Monday, I set out for the week to collect from customers that owed us money. I used that report all week. By Thursday, my info was outdated and A/R conversations got a little heated when the customer had already made payment and my report was inaccurate.
Tactic #2: Get Confident: As mentioned, you’re in business to make money and without getting paid, it’s charity. So, feel confident that the last phase of the sale is getting paid (and then reordering). They accepted your products and services in good faith, they had no problems with the quality that you’re aware. They owe you money. You should feel confident about getting paid for the value you delivered. The next confidence you need is in your information. Get help in understanding the transaction history. If it’s really complicated or dollar amounts are high, bring someone from your accounting department with you to help explain it.
Tactic #3: Anticipate Best Case, Worst Case, and Possible Outcomes – before going to the farm: Try to imagine several of the outcomes that might happen. Worst case, the customer might get volatile, deny the past due or worse, they rant/rave/yell/walk out on you/get abusive verbally or physically. I remember calling a salesperson to tell him to go collect on a past due amount. The salesman informed me that he would not be going out there anymore. When I asked why, he informed me the last time he went to collect on it, the customer pulled a gun on him. I accepted that and we wrote it off as I certainly wasn’t going out to collect $600 on someone who was willing to pull a gun out. Best case, it gets paid. Alternative solutions – at some point in the conversation, it often turns into a discussion on what the customer is able to do to clear the past due amount. It might be paid in installments over the course of time. To agree to this, you will want to brainstorm with your supervisor or accounting department as to what you are capable of offering. I recommend doing this before heading out to the farm.
Tactic #4: Get the customer’s side of the story first – (seek to understand): Always-Always-Always start with this step. Even if this customer habitually pays late, get their story first. Don’t jump into this conversation with a lot of heavy-handed paperwork and lectures on paying their past due. I like to section the conversation off. To do that, I will make a comment that we need to have a conversation around the past due balance. That way, we can have the conversation, focus on that issue, and then move on to other topics. Once stated that we are going to talk about credit, get the customer to talk about where they are on paying the balance. Don’t save the A/R conversation for the very last thing to talk about. Doing so will leave a lasting impression of your sales call. Also, it looks like you had ulterior motives or lacked the confidence to have the difficult conversation. Try to sandwich it in between topics. I tend to have it early, which leaves more time to recover if it gets a little heated.
Tactic #5: Develop a repayment plan – The end result of the conversation is to come away with payment or a solid repayment plan that makes sense for everyone. Consider what makes sense to the total amount, the interest rate, the amount of credit needed during this plan, what revenue the customer is receiving and when. The key is to make the plan so it is realistic for both parties. However, the most important part is that everyone sticks to the plan. Deviation from the plan needs to be discussed immediately to determine why.

Best Practices:

Watch for changes in payment terms: If they normally are paying in 30 days or 60 days and slip to 90, that is a red flag and you need to start paying attention.

Payment terms in order of preference: Pre-payment, ACH, short-dated terms, secured credit, long-term credit, long-dated terms. The terms need to make sense for both businesses involved. For your customer, time it out with their revenue stream. If a dairy, they may get paid twice a month. So, shorter terms would work. With an Ag retailer that turns your product quickly, you might offer an incentive for ACH, which times out with fast turning product. If it’s seed sales and the producer won’t see revenue until selling the crop from that seed, then longer terms are needed.

Special case: Large account with high transactions and slim margins – Not your everyday situation but if you have one of these, it is recommended that you take 60-90 days of the revenue from this account and put it into a bad debt reserve. These are the extremely large accounts that we have in all areas of Ag. They are great to have, but generally, require a lower margin due to their volume and bargaining power. Special attention to handling their credit is important. I’ve seen where one of these brought down a company that got in too deep. Put some of that margin away for a rainy day.

Don’t Ignore it: This is a bad strategy and your supervisor or accounting department probably won’t allow it anyway. Get on it early and often. If their credit is going bad, it probably won’t get better over time. If it’s not bad, then it will get resolved easily. Help keep your customers out of trouble.

Don’t Continue to deliver without a discussion: Same as the previous comments on ignoring it. You will be tempted to keep shipping in hope and fear. Hoping they will pay and fearful that if you don’t ship, they will quit you.

Don’t move past due balances to a note to free up more room on their open account: This was a strategy used many years ago that proved to be a terrible idea. Some of the sales team would take the customers that ran up their “open account” (which charged 18% interest) and move that balance to a finance note that only charged 9%. This then freed up their “open account” to continue ordering from us. You can guess what happened to the open account. Yep, it went past due again and now we faced doing another note or pushing for payment before delivering more product. Don’t help them dig a deeper hole.

In summary, collecting A/R is part of the sales process and ultimately lands on the sales person’s shoulders. You might have a collections department or you have a sales coordinator that is great at getting a check from the customer. That’s great! However, as salespeople, we got our company into this deal and we need to take responsibility to follow all the way through to payment and hopefully reordering.

If you found this to be helpful, forward on to someone you know who might also appreciate it.