SHORTER payment terms are helping grain growers reduce their counterparty risk when selling grain.
With several high profile insolvencies costing grain growers millions of dollars in recent years, the Victorian Farmers Federation (VFF) is encouraging grain growers to do their due diligence when selling grain, especially when dealing with new buyers.
VFF grains group president Ashley Fraser said grain growers were becoming more aware of the need to minimise the risks of non-payment for produce and how to best go about it.
He said shorter payment terms were one of the best methods growers could use to lower risks, as non-payment can be identified earlier and no further business done with that buyer.
"The VFF has led the campaign to reduce terms for grain sales to help lower the risks of non-payment for growers," Mr Fraser said.
"Faster payments mean less risk of being caught by a failing trader."
He said with advances in technology it was possible to get paid for grain within two days and that was the gold standard growers should aspire to.
"We have recommend growers ask for payments within 2 days, rather than the old 30 day terms," he said.
A number of buyers in the market have moved from 30 day to shorter terms over the past five years.
Mr Fraser said a lot of damage could be done on 30 day terms before a red flag, in terms of delayed payment, was raised.
"A B-double truck of grain each day for a week is worth over $50,000 and a month of daily loads can total over $200,000.
"Nobody wants to lose thousands of dollars, so make sure you sell to a reputable buyer who pays quickly."
He acknowledged that short payment terms did not always fit with a growers' cash flow position.
"Some growers also look for deferred payments terms to manage their cash flow.
"If you do this, make doubly sure you sell to a reputable buyer as your risk of non-payment is higher."
He said other useful strategies were common sense, such as investigating claims of prices markedly higher than others in the market, especially from a company the grower had not heard of before.
"Remember when looking at prices on offer that a price much higher than everyone else is probably too good to be true," Mr Fraser said.