It’s best not to put all your produce in one basket. Having a diverse clientele and markets with different payment terms will ensure a steady cash flow, advises up-and-coming farmer Mbali Nwoko.
When you’re in the farming business, it not only pays to diversify your crops, it’s also important to diversify your clientele and markets. The reason for this is because at any given point in time, based on your customers’ payment terms, you are assured of cash flow.
Every business has its own standard operating procedures and that includes how they pay their suppliers. Generally, large corporate retailers will pay between 30 to 60 days after statement and some processors (what we call packhouses in the industry) will have similar payment terms to that of retailers or will pay within 30 days.
Most packhouses supply to retailers and so they have to wait for their invoices to be paid out first before they can make a payment to the farmer. The upside with retailers and packhouses is that at the start of the relationship they will offer the farmer fixed prices for a certain period, making it easier for you as a farmer to determine your revenue for that particular client.
However, the downside is that even though a contract may exist between your farm business and the retailer, prices are subject to change based on promotions that the retailer may want to run for a weekend or holiday season. Therefore, this may reduce your expected revenue which you have no control over.
Furthermore, when supplying to retailers and or packhouses, as a farmer you have to meet product specifications. Defaulting from that could result in reduced income or your product being rejected entirely resulting in no income for that harvest.
Hence it’s important to understand the terms of doing business with retailers and processors before committing to contracts. You need to trust yourself as a farmer that you can meet expectations and continue to produce at a standard that is expected by the retailer.
Lastly, always budget for the fees (often called rebates) that come with doing businesses with corporate retailers and add that into your costing when forecasting your sales figures.
The national fresh produce markets work on shorter payment terms and a farmer can receive their payments from sales within a three-day turnaround time, on average.
Unfortunately, farmers do not have the power of dictating what price the market sales agent should sell their produce as prices are always discovered at the national fresh produce markets based on demand and supply. Market agents also charge a commission fee for selling your produce on your behalf and a percentage of your sales also goes to the market itself.
Of course the best form of payment is cash. Businesses that operate on a cash basis will most likely be informal traders, privately owned green grocers, franchise owned retailers and or selling directly at farmers markets. Receiving money in cash definitely has its pros and cons and it requires a very disciplined person to be able to handle money on a regular basis.
Fortunately enough, technology has made it possible for farmers to sell their produce directly to consumers – from farm to fork as they say. Having an online farm store not only helps promote your farm business but is an added advantage in controlling your income stream because customers will pay for the produce before its delivered.
As a farmer, it’s important to have control over your business and set your own payment terms when dealing with customers. Be prepared to negotiate with clients when terms are not set to your advantage and remember that farming is capital intensive. Having a business that is liquid will ensure your business survival for many seasons to come.
