Monthly payments eliminate big big custom operating bills
Custom chopper Bill Arneson expects 2009 to be a challenging year for him and his clients.
“It's going to be a strong test of will, not just in farming but for everybody, and everybody's going to have to work together,” says Arneson, of Barneveld, WI.
He's working with two of his dairy clients on a monthly payment system he thinks will ease financial stress for himself and them. The payments, which started last month, are based on each client's estimated total bill for the year.
“With milk prices the way they are, they like how it can help them cash flow,” says Arneson. “Instead of getting those big bills after each crop, they can spread it out over 10 months. It helps me, too, with planning for repairs and help, to get a little bit in ahead of time.”
He wanted to put more of his clients on monthly payments, offering a 2% discount on each payment made by the 15th of the month, but only two accepted his proposal. Others are interested but “they want to see how it goes for somebody else before they'll dive in,” he says.
The participating clients will get an additional 2% off any end-of-year balance if they pay it by Dec. 31. But he'll evaluate each account in August, before the corn silage harvest. If necessary, he'll adjust the monthly payments to minimize year-end balances.
“We want to make sure everybody ends up pretty close to the line,” he says.
He set the monthly payments by averaging each client's total bill the past three years and dividing by 10. The past two years were unusual, with a long dry spell in 2007 and a wet May followed by late-summer dryness last year. But 2006 was almost an ideal year.
“So I think the average over those three years should come out pretty close,” he says.
“The two farms we're working with seem to really want to make it work,” he adds. “Next year it probably will start in January and go through 12 months and we'll make the payments smaller.”
The blueprint for Arneson's monthly payment system came from fellow Wisconsin Custom Operators member Dick Kraus of Elkhart Lake. Kraus and his brother, Bill, chop haylage and corn silage and also custom plant and haul manure. They started their system several years ago when a client requested it.
About 75% of their clients now pay that way, starting in January or February each year. Most of those who don't are corn silage- or manure-hauling-only clients who prefer to write checks for the full amount after the work is done.
Like Arneson, Kraus bases monthly payments on the amount of work done for each client the previous year. For new clients, or existing customers who add a significant amount of work, Kraus uses normal cost-per-acre figures.
“We can guesstimate pretty close what their bill's going to be,” he says.
He still invoices clients after every job so they know where they stand as the season progresses. Then, in early December when most of the work is done, he sends notices to clients who will have year-end balances, reminding them that they're eligible for the additional 2% discount if they pay by Dec. 31. No interest is charged on that money before January.
Monthly payments are an effective way to reduce the risk of not getting paid, says Kraus. But for him the biggest advantage is improved cash flow during winter months when he's not doing much work but still has expenses.
“By and large, it's worked out really well for us,” he says.