If you’re an agriculture retailer, you’re probably familiar with input financing, or offering funding plans to help customers purchase crop inputs. But maybe you’ve thought of it primarily as a solution to messy accounts receivable.
In reality – and particularly in our current market conditions – input financing can also be a powerful sales tool that helps you increase wallet share among current customers while also bringing new customers into your business.
In this piece, we’ll lay out why now is a particularly good time to introduce an input financing product and how to make it work.
Why the Current Ag Economy Makes Now a Great Time to Consider Input Financing
Farmers are being stretched thin right now. Interest rates have been rising for more than two years, and even with the Fed’s recent cut, we’re still way above the decade-plus of historically low interest rates we saw before the pandemic.
On top of that, inflation has soared since 2020, as pandemic-era supply chain glitches and production interruptions proliferated. And while the rate of inflation has cooled as of now, it’s still marching along at a steady clip.
Meanwhile, commodity prices have plunged over the last year. The result for farmers is a kind of perfect storm of financial strain: high capital costs, high input costs, and low crop prices.
Ag retailers, too, are feeling the toll of the current economic climate. Margins on the goods they’re selling are nearing all-time lows, and it’s becoming more and more common for customers to go past due on their “in-house line of credit” with retailers.
In recent years, many ag retailers have looked to mergers and acquisitions to streamline finances on the back end. But while M&As can lead to synergies and economies of scale, they also cost money. And money is expensive right now.
An alternative for ag retailers – one that can also offer customers a financing option that doesn’t wreak havoc on retailers’ balance sheets – is input financing.
The Threefold Benefits of Input Financing
Most ag retailers are familiar with input financing as a cash-flow solution when customers are past due on in-house credit lines. By implementing input financing, retailers can reduce their days sales outstanding (DSO) and maintain greater liquidity.
But input financing – especially implemented with a SaaS model – offers two other benefits ag retailers should consider.
First, as we hinted above, input financing can be seen, particularly in our current economic climate, as a growth alternative to M&As. In other words, instead of investing resources into merging with or acquiring another brand, retailers can use those resources to fund an input financing solution.
This is particularly workable when the retailer can partner with an organization that provides the technology needed to run the program, including the digital application, loan accounting systems, loan scoring system, and other back office necessities. In this setup, the retailer becomes the lender of record, thus adding significant value to customer transactions.
Which brings us to the third benefit of offering input financing: it can be a powerful sales tool, especially given the current state of the ag economy. Increasingly, agronomists in retail locations are reporting that farmers are the ones to initiate the financing conversation.
When an agronomist introduces a new foliar treatment or fertilizer, for example, farmers are asking more and more often whether the retailer has any financing options. Without them, farmers know, they won’t be able to float the capital necessary to make the purchase.
When a farmer doesn’t initiate the conversation, agronomists and other sellers can introduce the option as a way of increasing wallet share. If a farmer’s customary seed vendor, for example, isn’t able to offer input financing and the farmer has to tap their local operating loan at, say 12 percent interest, there’s an excellent chance another retailer can win them over by offering input financing at six percent – or lower, if they’ve invested in buying down the rate.
Given current economic realities, customer loyalty is likely lower than usual; financial products like input financing may be enough to win over folks who would have otherwise been unlikely to budge.
Implementing SaaS-Powered Input Financing
So how can interested ag retailers implement a SaaS-powered input financing program?
The first step is to demo a solution with a partner who offers one (like Growers Edge). If the solution makes sense for your organization, the next step is to negotiate a program agreement. From there, the onboarding is fairly simple. Our system, for example, is plug and play. It’s built to integrate with most major ERPs that ag retailers use.
Once the system is set up, we generate a link to a digital application for customers. You can post that link wherever your customers are likely to make their purchases – on your website, on your social media sites, and even in store or on physical mailers (for example, with a QR code for easy access).
When someone clicks the link, they can typically complete the application in five minutes, and loans are generally approved within 48 hours.
In most cases, the biggest job for the retailer is educating customers about the availability of input financing and how it can benefit their bottom line.
In Today’s Economic Climate, Fintech Gives Ag Retailers an Edge
The market is flush with innovative crop inputs, from more efficient fertilizers to drought-resistant seeds. But given the economic reality we find ourselves in, few farmers will be open to these products without financial offerings that help them manage risk and / or defer payment until after harvest.
Input financing does the latter, while also protecting ag retailers’ cash flow. If you’re interested in learning more about our input financing program, get in touch.