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Farmers are legends at shopping around for the lowest price for inputs.  Not surprising really, in that they are price takers for what they produce.

They also shop around for the lowest interest rate, but most expect the bank to do all the moving.  The reality is that, even from their current bank, there is a lot to be gained by making a few changes to the way they present themselves. An interest saving, of as much as $10,000 per year, is possible.

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The banks assess every customer and give them what is essentially a risk score. Higher risk increases the bank’s cost to secure funds and this translates to a higher interest rate.

By demonstrating that you have a well thought out plan, and know how to keep that plan alive as the year progresses, you are reducing the risk. And if you are doing this consistently, then it’s worth asking for a reduced rate.

But there’s more to this than just preparing a plan. The season and prices will change but what the bank is interested in is how you manage that volatility. There is no substitute for having your finger on the pulse. This can only be done by knowing (financially) exactly where you stand and having a vision of where you expect to be at the year’s end. With a good system this should be a quick and efficient process, allowing you to concentrate your efforts on how to manage the volatility and get the best result possible.

It may be that you will not be able to achieve the results you hoped for in the plan, and there is nothing wrong with signalling this to the bank. They are far more likely to view advanced warning in a positive light than a blowout with no explanation. It’s often said that high debt in itself is not a big problem – but unmanaged debt is.

The icing on the cake is that if you are presenting yourself really well to the current bank, planning well, undertaking monthly monitoring and communicating regularly, then it’s really easy to walk to the bank down the road and show them the same information.  Given that risk, the current bank may be keen to sharpen their pencil.

Potentially there is $10,000 per million dollars of debt to be saved by every farm business, every year. Over five years that’s a possible saving of $50,000 per million for your farm.

Worth thinking about.

I reckon a few hours in the office might just have the highest payback of ANYTHING the farmer has ever done.

 

Brian Eccles

Founder and Managing Director, CRS Software

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