Managing merchant credit: How best to manage creditor bills and risk
Earlier this year, reports revealed that farm incomes fell off a cliff in 2023. For farmers and the accountants who work with them, this was no surprise.
The agricultural sector continues to navigate significant economic challenges, with merchant credit emerging as a key concern for Irish farmers. While the hyperinflation of recent years has eased, costs haven’t returned to pre-Covid levels, creating ongoing pressure on farm finances.
The seasonal nature of farming – where income follows natural cycles like the dairy curve, autumn harvest, or livestock sales – means most farmers rely on merchant credit for essential inputs like feed and fertiliser. This raises an important question: how have elevated costs affected farmers’ merchant credit levels, and what are the implications for farm businesses?
The story first appeared in our 2025 Irish Farm Report.
Discover more insights like this in our 2025 Irish Farm Report – Download Now!
Noreen Lacey, Head of Banking
Our recent sample analysis shows that merchant creditor debt has increased by 17% since December 2019, with the average farm now carrying €30,751 in merchant debt.
| Average Closing December 2023 | % Change 4 years | |
|---|---|---|
Average dairy | €42,501 | 22% |
Average other livestock | €16,646 | 3% |
Average Tillage | €28,225 | 7% |
Total Farm | €30,751 | 17% |
As you can see, dairy farmers face the greatest exposure, with average merchant debt reaching €42,501, a 22% increase over four years. This trend is reflected in the rising cost of production, with milk production costs now reaching 37-38c per litre, according to the Teagasc Outlook conference.
Comparatively, tillage farmers show more moderate increases at 7%, carrying an average of €28,225, while other livestock enterprises demonstrate the smallest rise at 3%, averaging €16,646.
How to manage merchant credit effectively:
The critical question for farmers is whether their merchant credit represents current trading debt or accumulated historical debt. For farmers carrying excessive merchant debt, implementing a structured reduction plan is essential. This should include a comprehensive assessment of current balances and interest rates, a development of realistic cash flow projections, and a strategic prioritisation of payments, focusing first on high-interest creditors. High levels of accumulated merchant debt can significantly impact farm profitability through:
Premium pricing, compared to cash purchases
Compounding interest charges
Reduced negotiating power
Limited flexibility in supplier relationships
How to manage capital effectively:
As operational costs remain elevated compared to pre-Covid levels, maintaining adequate working capital has become increasingly important. For this, one should:
Implement robust financial controls and tracking systems
Regularly review merchant statements for accuracy
Maintain updated cashflow forecasts
Conduct monthly financial reviews to identify areas for improvement
Should I consider alternative financing solutions?
Several financing alternatives exist for managing working capital, including Credit Union loans and bank-specific products like AIB’s Farmer Credit Line, Bank of Ireland’s Stocking Loan and Term Loans from PTSB. Success in managing merchant credit requires strategic planning. Key recommendations we’d suggest:
Align major purchases with income cycles
Build cash reserves during profitable periods
Consider forward contracts to lock in favourable pricing
Explore cooperative buying opportunities for bulk discounts
Maintain detailed financial records
Engage with farming discussion groups for knowledge-sharing
As the farming sector, like everyone else, adapts to higher operational costs, effective working capital management is now more important than ever. Regularly reviewing merchant credit levels, adequate cash reserves, and appropriate financing options will be key to building sustainable farm businesses.
Farmers who are under pressure should consider all options when it comes to addressing cashflow issues; pausing repayments, tackling costs aggressively and selling unused machinery and investments are all options that can be explored.
However, with careful planning and disciplined financial management, farms can build stronger financial foundations while maintaining productive relationships with merchants and suppliers.
In summary (AKA what you really need to be doing):
Review your current merchant debt status, and identify if your debt is current (30-60 days) or historical
Develop a debt reduction plan if you are carrying significant historical debt
Ensure sufficient working capital reserves for spring operations
Consider alternative financing options for better cost management