Credit Risk
With the recent drop in commodity prices, one topic that always seems to be part of the discussion is credit risk. Credit risk refers to the risk that a borrower will default on any type of debt by failing to make the required payments. This risk includes potential lost principal and interest, disruption to cash flows and working capital, and increased collection costs. The economics of production agriculture are significantly different than just 18 months ago and this will have an impact on your company. Companies cannot control the decisions made by their customers on where the grain goes, how much fertilizer will be applied or where seed and chemicals will be purchased. Your company has to work to manage the risk being generated by your customers. It is more important now than a few years ago, to have a solid foundation for addressing the credit risk in today’s market. This includes having a strong credit policy, knowing your customers, setting up credit limits and continually monitoring both the policy and outstanding receivables. At the end of the day, today’s customers are much larger than those in recent years, handling significantly more dollars and risk in their operations.
