In Ohio, we have some of the best Farmers’ Markets anywhere and it can be a pretty good seasonal business. Many farmers have their own road side stands and these same farmers will sell on a wholesale basis to other stands or markets. While most farmers do require to be paid upon delivery of their produce, some of the bigger markets cannot operate that way and will pay on terms – usually net 30 days.
If you are working with the larger markets, which is much simpler for a farm to supply, not having to worry about the smaller markets who only need a little produce every few days, it is much better for business if you sell to the larger markets so that you have only a few customers to be concerned with.
The downside to that plan is that you will need to cover the expenses until the time that the large markets make the payment to you. This is where AR Factoring comes into play. These larger markets will typically be customers which most Accounts Receivable Factoring Companies will have no problem advancing funds against the delivered goods from which the invoices were generated for.
How this works is like this:
- You deliver the produce to the market and raise an invoice at that time and have the market sign a confirmation of delivery for the order;
- You provide the invoice and the proof of delivery to the Factoring Company;
- The Factoring Company will then give you an advance on the sale based on the face value of the invoice raised;
- The Factoring Company will then do the collection of the invoice from the market;
- When the market pays, the Factoring Company will then give you the balance of the funds less a service fee for the advance based on the number of days the funds have been in your possession.
Financing of Accounts Receivables really is a simple solution for many businesses to help cover the costs of Farmers Market Operations which include the harvesting, packaging, shipping as well as fuel and labor costs related to all these activities.
Now a word of caution: Not all Alternative Lenders do work with food related industries so when you are looking for an Alternative Lender for your cash flow assistance, be sure to let them know up front that you are a farm and which products you work with. Some foods carry different ratings than other due to spoilage probability and price volatility. You do not want to go through the process of getting approved for funding only to find in the end that you will not be able to put everything in place due to an oversight.
Personally, I have had great success with this type of funding for our Agricultural Business, hopefully this advice will help yours.