Get the most from biggest cash input

With somewhere in the region of £350 million going into farmers’ banks this week through the single farm payment (SFP) scheme, the cash flow pressure will be off most accounts.

Sandy Hay said farmers should make cash work hard. Picture: Contributed
Sandy Hay said farmers should make cash work hard. Picture: Contributed

The challenging conditions of the past 18 months has meant that many farm business overdrafts are running at higher levels than usual and the receipt of the SFP cash will be a welcome relief according to Sandy Hay, Bank of Scotland’s head of agriculture.

For many businesses in that position, he said, reducing the overdraft was the right decision but for others, there could be opportunities to make their SFP work harder for the business.

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“The SFP will be the largest single credit into many farm bank accounts this year,” he said, “so it’s worth considering whether there is any major expenditure such as taxation or a key investment pending in the near future. If this is the case, it’s worth reflecting on whether it would be appropriate to ring fence some of the funds to keep them separate from your day-to-day trading. Placing the funds in an interest-bearing account or short-term deposit may be an option.

“Receipt of the SFP could also be the trigger to think about whether it’s now the appropriate time to restructure the existing overdraft into a longer-term loan while interest rates remain relatively low. This will allow the business to keep moving forward while bringing borrowings into a more manageable structure.”

He advised farmers to talk to their bank managers as soon as possible so that they were fully aware of all options and could thereby use the payment in the best way for their business.

“Getting the right advice is key,” he said.