On March 1, a feedlot owed a farm $240,000 for 40,000 bushels of wheat delivered on a credit sale, and on April 30 it still had not paid. The amounts in this article are an example, not market prices. If the feedlot fails, the farm is a general creditor with no right to reclaim the wheat. When an unlicensed buyer does not pay, Texas A&M extension specialists add, no bond covers the seller. The decision is how much of what you sold is still unpaid, and by whom. List each credit sale not yet paid, which accountants call a receivable, with the buyer, the amount, the due date and the days past due, and add a total at the foot. Do it before the next load leaves on the same terms.
Why does a sale you recorded still leave you short of cash?
Because a sale in your records says the grain left, not that the money arrived. The example farm delivered the wheat on January 30 and agreed to be paid by March 1. On April 30 the sale was 60 days past due, and neither the sales record nor the tax return shows that wait.
On the cash basis, which most farms file under, income counts in the year the money actually comes in. Grain sold in December under a contract that pays the next year counts as income only in the year you are paid, the IRS Farmer’s Tax Guide explains. The exception is a contract that lets you claim the money any time after delivery.
A sale delivered and not yet paid has a plain name, a receivable. A farm balance-sheet guide from Mississippi State University puts it simply: delivered grain the buyer has not paid for stays on the books as money owed until the payment arrives. Until it lands, the sale is real and the cash is not.
The wait is often agreed in advance. In a deferred-payment contract, you deliver grain in one year and are paid in the next. It is an ordinary arrangement, and every month between delivery and payment is a month the farm finances the buyer.
What happens to that money if the buyer fails?
You join the line of everyone else the buyer owes. Mark Welch and Tiffany Dowell Lashmet, extension specialists at Texas A&M, explain that when grain is delivered under a contract, title passes to the buyer and the seller becomes a general creditor. Grain left in storage under a warehouse receipt is different: it stays the farmer’s property, and when an elevator goes bankrupt the farmer holding it is not a creditor.
Bond protection follows the same line. In Texas, a public warehouse’s bond protects grain depositors for storage and does not apply to forward contracts or other purchases. A feedlot, a dairy or a feed mill need not hold a warehouse license at all. Even when the buyer is licensed and bonded, they write, there is no guarantee farmers will be fully reimbursed if the buyer becomes insolvent.
Livestock has a federal rule that also favors cash. A meatpacker must pay by the close of the next business day unless there is a written agreement otherwise. A seller who agrees to wait gives up a legal trust that protects only cash sellers, and only against packers above a size threshold.
These rules differ by state and by buyer, and how much is left for the last in line depends on each failure. What holds wherever you sell before you are paid is that the seller who agreed to wait stands near the back. A dated list tells you, before the next load leaves, how much rides on that buyer staying solvent.
Isn’t the bank statement enough?
It is necessary and not enough, because the statement shows what moved through the account and says nothing about the sale that never did. A University of Nebraska extension guide describes the monthly check. You compare each entry on the statement against your own record, and up come the fees, the interest and the automatic debits the farm never wrote down, along with a deposit entered wrong. Every one of those is money that already moved.
The example farm issued invoices for five sales from January to April, $505,000 in all. Its statement shows two deposits, $140,000, the two cash sales. The three credit sales leave no entry at all, because nothing was paid, so a check that starts from the bank cannot find them. The list starts from the invoices and asks which sales never reached the bank. The answer is $365,000, or 72 percent of what the farm invoiced.
What does the month’s list have to show?
One line per unpaid credit sale, with five things: the buyer, the amount, the invoice date, the due date and the days past due. The invoice date and the due date fix when the clock started and when payment was promised. Days past due is the count from the due date to today, and it stays at zero until the due date passes. At the foot sits one total, the value of what you have sold and not yet collected.
The example farm has three credit sales on April 30. It sold 40,000 bushels of wheat to the feedlot at $6 a bushel, 15,000 bushels of grain sorghum to an elevator at $5, and 10,000 bushels of grain sorghum to a feed mill at $5.
| Buyer | Amount | Invoice date | Due date | Days past due on April 30 |
|---|---|---|---|---|
| Feedlot | $240,000 | January 30 | March 1 | 60 |
| Grain elevator | $75,000 | March 20 | April 20 | 10 |
| Feed mill | $50,000 | April 15 | May 15 | 0 |
| Total | $365,000 |
You write the total and the dates, not your opinion of a buyer; what to do about each one you decide afterward, from the days past due. In the example, the feedlot line is 60 days past due and two thirds of the total, so it is the call for this week. Checking that a receivable was paid is easier when the farm has its own account, apart from the family’s, so a buyer’s payment is not lost among household transfers. Reading what you sold against what came in, and acting on the gap, is everyday work in managing a farm as a business; more on farm money is in the finance section of the library.
Where to start
It takes an afternoon with this cycle’s invoices and the bank statements for the same months. Nothing here needs a system or a bookkeeper, only the sales you already made and the statement you already get.
The total at the foot is the money the farm has earned and does not yet hold. In the example it is $365,000. A small total with recent lines means sales and cash are nearly the same thing. A large one with old lines means the farm is financing its buyers, and from the list you learn whose and for how long, before the next load goes out on the same terms.