This is an old expression that I’m sure you’ve heard people express many times. You know what? It’s true. Recently, however, I’ve been surprised to hear some bankers and vendors to the dairy industry exclaim their surprise by stating that they cannot understand why producers aren’t catching up more quickly on old accounts payable.
While I am often shocked to hear them say this, let’s review what has happened during the past five years. All dairymen have been “shell shocked” by low milk prices from 2015 through 2018. Early 2019 also did not roll out any super high milk prices either. At best, prices may have been at “break-even” levels for a lot of producers. Prices have come up, but that has only been since mid-2019.
Thus, the lower milk prices since 2014, combined with higher expenses and additional borrowing to overcome any cash shortfalls, has created a situation where it has been much more difficult to cash flow. I believe that has been true for all producers. Hopefully, these points will help address any vendors or bankers who are asking why producers are struggling to catch up. In one case when a lender asked this, he had decreased the amount that the borrower could revolve back on his lines of credit. Of course, this lowered his Loan-to-Value, but it tightened cash flow even more…
So, what can a producer do to get caught up? Here are several suggestions:
- Understand that you cannot complete this process in six months, unless you have the opportunity to complete a refinance and have a lender willing to do this.
- You must chip away at old Accounts Payable as much as possible. If possible, start with the smaller A/P’s. It’s just like trying to pay off old credit card debt. Just getting some of these smaller ones off you’re A/P list can start to build some momentum for you. As these go away, you will actually start to feel a sense of making some progress!
- Do not ever say, “I can’t pay anything off.” First, this is simply not true. Second, if you keep saying that, your mind will start to believe you, creating even more of a setback for you. None of us needs that type of negativity, and, frankly, it serves absolutely no good purpose.
- Review all of your Accounts Payable. Are there items that you absolutely need to continue using? If they are, can you do as well with using less? In the last two years, I, too, have had to review my office and travel expenses. However, without hurting our business results, I’ve been able to cut these costs by about 15%. This was completely due to improved planning and monitoring. If I can assist you with this process, please let me know at [email protected].
- Spend some time talking with other producers to see what they may be doing to get their accounts payable and loan balances down. You will likely learn something positive from them, and hopefully will offer them something of value as well. This area has been a struggle for many producers. There is certainly no reason to be embarrassed about it, but you have every reason to be concerned. Others are concerned as well.
As I stated in the title of this article, “Rome wasn’t built in a day.” I would expect that this will take some serious time and thinking, but I am confident that, given the right amount of time and attention, you will figure it out. Please allow me to leave you with two questions.
What action do you need to undertake this week? And, what will you do differently, going forward? Think about it.
Here’s a suggestion for you. Sign up for our new Success Strategies Business Navigator Program. If you are open to learning new concepts and discussing them with other producers, you should take a look at this new program that will start early next year. It’s completely online, freeing you from travel but offering you an opportunity to learn from industry experts in the areas of milk marketing, management, financial analysis & banking/finance. For the value of the milk production of one 85 lb cow for a month, you can enroll in this quarterly workshop program for one year. What have you got to lose? Check it out at:
You won’t regret it. I wish you the very best for a success-filled year!
The related YouTube video can be seen below: