Farm Ireland
Independent.ie

Tuesday 12 December 2017

'We're contractors, not bankers': Agricultural contractors owed thousands by farmers face going bust

 

Modern harvesters can do close to €20,000 worth of work in a day
Modern harvesters can do close to €20,000 worth of work in a day
Derek Casey

Derek Casey

The average Irish contractor is owed around €35,000 by farmer customers for works done but not yet paid, the Association of Farm and Forestry Contractors in Ireland (FCI) has claimed

The FCI says contractors are continuing to fund huge levels of farmer debt as the silage harvest progresses and this debt level is threatening the viability of many Irish land-based contractor businesses.

The lobby group estimates that Irish agricultural contractors are collectively now owed in excess of €12 million for work done prior to the start of the annual silage harvest.

Debt is a thorny subject; success has many fathers but really, who likes to admit when they get burnt from a bad debt or run up significant losses despite working hard all year?

"Contractor debt is not measured in the same way as bank or other supplier debt. For this reason it is not considered visible within official circles, but it is hugely visible to us as contractors" says FCI national chair Richard White.

"For many contractors, there is no interest applied to this debt, some of which is now more than 12 months old. We are concerned at the increase in the level of contractor debt on farms, especially as 2017 milk output has been at its highest level ever and milk prices have stabilised.

Christopher
Christopher

"Our members are funding fuel and labour costs from modest cash flows, but the rising debt is putting additional pressure in contractor operations," he says.

"I would urge contractors to set up monthly direct debit systems to suit an agreed timeframe with their farmer customers.

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"We are seeking support from banks to enable these payment systems to be put in place to ensure the viability of the land-based contractors who can longer act as interest-free banks.

"Remember, we are contractors not bankers," Mr White concluded.

The issue was raised at the recent FCI AGM, where contractors were asked to anonymously submit the level of farmer debt owed to their business for works completed.

While the sample size would have been small, the anonymity factor would have minimised any embarrassment and encouraged contractors at the meeting to be honest about their debt levels.

Krone silage harvester
Krone silage harvester

The results showed that contractors are owed an average of €35,000 from their farmer customers.

The FCI say that, scaling this figure up across the country would indicate that if even half of Ireland's contractors are owed this amount, then in excess of €12m is still outstanding to contractors.

FCI estimated that a debt of €35,000 would cost a contractor in the region of €2,000 annually to fund based on a 6pc interest rate.

The cost will be almost double that if the debt is funded through more expensive contractor overdraft.

The annual cost nationally to contractors for the €12m outstanding debt is in excess of €730,000 and it could rise to as high of €1.2m, depending on the source of funding.

To find out more, I spoke with two contractors this week.

Indicative of how sensitive the subject is, I could have had 10 'anonymous' accounts but it wasn't easy finding guys willing to go on the record.

One man happy to speak up is Castletown, Co Meath-based slurry and silage contractor Christopher Duffy (pictured, below right), who has had his own struggles with debt in the past.

These included getting repossession orders when he wasn't able to meet machinery repayments.

"The figures don't surprise me at all," said Mr Duffy told me. "If anything they are probably conservative. If you look at a modern harvester it is able to do close to €20,000 worth of work in one day, so it would be very easy to rack up €40,000 or €50,000 of debt in a season. I know one colleague who is currently owed a total of €120,000 through works done for four customers.

"The customers I have now are good; they work with me and I work with them. We communicate. I personally am now in a better position than I was a few years ago, mostly because I learned the hard way to change my invoicing and debt-collection habits.

"I've let the bad customers go - the ones who are slow to pay, or won't pay: they'll bring your business down in no time. I let about 10 of them go three years ago.

"The last one I let go owed me money for slurry work done in January 2016 - 18 months' credit - how could anyone run a business like that?"

Mr Duffy says it's all about timing when it comes to collecting payments. "You have to work with farmer customers, who, I'd like to stress, for the most part are on the ball.

"A few of my customers have direct debits set up but it's the exception rather than the norm. I try to get paid going out the gate where possible.

Milk cheques

"Failing that, I will work with farmers so that I bill them at a good time after milk cheques are in, around the 20th of the month. I will be flexible for a customer who I know won't mess me around. If a new customer rings up, I'll do the job provided I get paid on completion. It's no harm to do some background checks - why did the customer move on from his or her last contractor?"

Philip Heary, based in Kells, Co Meath, specialises in silage cutting and industrial work.

He sits on the board of the FCI and was present at the AGM on the night the debt survey was done.

"I was owed €61,000 that night," said Mr Heary. "At the moment I'm owed €41,000. I had to call to one farmer seven times to eventually get a cheque for €1,000.

"Another customer owed me €17,000 but when I called to his yard, he told me he had feed and fertiliser to buy and he was dealing with those first because they were 'more important'. I found out later that he prioritised the feed company bill because they charge interest on debt, so in the meantime I'm expected to go without payment. Is the lesson that we need to start charging interest?

"Most of my customers are very reasonable and will work out a repayment schedule with you, but the attitude of some is incredibly frustrating," said Mr Heary.

"I do everything I can to keep good cash flow and avoid an overdraft, but it' so hard.

"I offer a discount for those paying for silage work immediately after the job.

"Some farmers offer me a post-dated cheque to coincide with their milk cheque, which I have no problem with, provided I know they are genuine customers.

"This year I got a debit card machine from the bank that I keep in the van so people can pay that way too if it suits them," added Mr Heary.


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