Agri-food: how can payment terms be turned into a competitive advantage?

The agri-food sector is one of the industries that has long distinguished Italy, both on the domestic market and internationally. Traditionally synonymous with quality, the sector has faced numerous changes in recent years. Banca Ifis has a long-standing commitment to supporting agri-food businesses with solutions tailored to an ever-changing environment, from domestic demand to the complexities of the international market. Teodoro Antonino, Commercial Manager at the Avellino Branch, tells us more about this.

What are the main financial challenges for a business in the agri-food sector?

The main financial challenges facing businesses in the agri-food sector are:

Changing climate conditions and natural resources: water scarcity and the need to protect the land require adjustments to production and commercial strategies, as well as new investment.
Generational change: most businesses in the sector are managed by entrepreneurs over the age of 40, and succession has not always been adequately addressed.
The fragmented nature of the business landscape: the sector is made up largely of small businesses, with limited use of supply-chain initiatives such as consortia and cooperatives.
Competition from emerging countries and the “globalisation” of certain Made in Italy products of excellence: Turkey, for example, makes up for Italy’s limited domestic hazelnut production, while Chile has planted the same varieties of Campanian hazelnuts, displacing Italy from second place among the world’s largest producers.
The decline in demand, driven by the growing disparity between the selling price received by individual producers, which in some cases does not cover production costs (as in the case of premium grapes), and rising labour, fuel and crop protection product costs, domestic consumption having halved over the past 15 years, and tariffs hampering exports.

Managing such a complex economic environment requires a financial partner with specialist expertise in supporting businesses in the sector, such as Banca Ifis, which has been supporting Italian agri-food companies for more than 40 years.

Why has trade receivables management become increasingly important in the sector?

The management, monetisation and, where applicable, guarantee of domestic and international trade receivables can help businesses partially offset the unpredictability of the market and the environment in which agri-food companies operate. Trade receivables management services can, in fact, offer:

customer risk monitoring, with the possibility, in certain cases, for the factor (i.e. the Bank) to assume the risk;
financing of receivables before their due date;
certainty of payment;
growth in volumes by expanding activity in existing markets and entering new ones, with access to additional specialist financial support beyond that provided by generalist banks. Factoring can also cover the entire exposure to key customers, where they have a strong credit standing.

Furthermore, to support the entire supply chain, reverse factoring provides tangible benefits to all parties involved: the supplier (assignor) and the lead company (assigned debtor). It is designed for medium-sized and large companies with a fragmented supplier base, with which they have ongoing commercial relationships and significant purchasing volumes, as part of so-called “Supply Chain Finance”.

In addition, by having the receivable recognised, the supplier gains faster access to credit through financing that complements the facilities already offered by the banking system. The assigned debtor, meanwhile, may benefit from an extension of payment terms beyond the original due date of receivables assigned by suppliers to Banca Ifis. Finally, reverse factoring, with or without an extension of payment terms, may also provide for Banca Ifis to assume the debtor’s insolvency risk in relation to receivables assigned by suppliers.

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How can factoring and other financial solutions support the growth of an agri-food company?

Compared with other financial instruments, factoring offers a high degree of flexibility, adapting, through its various technical forms, to different types of commercial relationships. For example, an agri-food company can effectively manage seasonal peaks through a range of solutions, including:

domestic and international factoring;
outright purchase of trade receivables;
assignment of VAT receivables;
advances against foreign invoices and/or export finance solutions for businesses operating internationally.

Another challenge facing businesses in the sector concerns the procurement of raw materials and semi-finished products on domestic and international markets. For certain products, such as hazelnuts and chestnuts, domestic supply is insufficient to meet the needs of processing companies. To address this need, businesses can turn to financial products specifically designed for international trade relationships, such as documentary credits and import finance.

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