In Defense of the “Mean” Vendor

I recently had a very interesting conversation with a producer. After asking him how things were going, he replied, “Man, these feed companies are really getting pushy. They expect me to be current every month.” I thought to myself, “Oh really… so does Wal-Mart.” I am not making light of the fact that the dairy industry has had a tough 2015-2017, or, for that matter, that all industries have their moments when cash flow is tight. However, the vendors that he was referring to had been extending him as much credit as they possibly could these past 27 months. However, they were running into two big issues: 1.) Their own cash flow was being pinched. 2.) Their lenders were pressuring them to clean up their Accounts Receivable. We have been through an interesting evolution. 40 years ago, supposedly no dairy ever made any money… Yet, they still were able to pay for their herd, their feed & operating expenses, provide owners with a living and an eventual retirement. 20 years ago, our markets changed to a global outreach, putting additional pressure on our revenues as we attempted to compete more with the entire world. Costs increased but at a fairly reasonable pace. However, the last 10 years, particularly during 2008-2009, the global swings have been wild! Despite assurances from the Federal Reserve Board that we have only minimal levels of inflation, almost all fixed and variable costs have climbed dramatically, pushing our break-even price levels to all time highs. Often, these were even pushed above a reasonable level. Suddenly, more businesses, particularly dairies, started to fail financially or, at best, began to liquidate. As a result, some vendors, whether secured or unsecured, received far less than what was owed to them. Not only did this crimp their margins, but the legal fees and other costs associated with collections became overwhelming. Even if they collect the 18% interest they often charge on “past due” balances, does that cover the cost of their financial manager or legal fees? I doubt it. Hopefully, this will provide you with some perspective the next time you hear about a “vendor coming down on one of your neighbors.” Remember, most vendors are in this game for the long haul (and those who aren’t will sort themselves out…), but they can’t very well serve your needs if they aren’t around any more. Think about it.