"If there's one thing that's going to put us out of business, it's farmers' bad debts," says Stuart Sorenson of Bonduel, WI.

Sorenson, like most custom harvesters, works hard for his money. When a farmer doesn't pony up his payment, the harvester not only doesn't make a profit; he still has to pay employees, subcontractors and other expenses with his own funds.

"We're a $2 million/year business and we have $150,000 owed to us, which is really hard to handle," he says. "If you go to a retail store, it has shoplifting losses figured into its prices. Our competition is strong enough that we can't put bad debt into the price of our harvesting business."

Essentially, custom operators become their clients' lenders when payments are not made, says Mike Wetter, senior financial services officer at Farm Credit Services, DePere, WI.

"As a custom operator, you should know how many cents in custom harvesting fees you can afford to lose and still stay in business," Wetter suggests.

You first need to know your profit margin and breakeven price on a per-acre or per-hour basis. Then calculate how many acres per hour you would have to cover to make up for estimated non-payments.

"If you do your homework, you will have less receivables to deal with and more time to spend at your business, where you're making money," says Wetter.

Written agreements are a must in dealing with new clients you may not know well. A contract can include payment plan options, the loan officer says.

"If the farmer doesn't have the ability to write out a check for the entire amount due 30 days after the services are provided, then you have the option to spread payments out over a 12-month period." That option works especially well for dairy farmers, who have monthly incomes.

Not everyone needs to sign a written contract. "If you've done business with a neighbor for several years and know he's good as gold, there's probably no need."

Other ways to minimize credit risk include asking the customer for credit references. Ask for the client's banker and get the names of two or three major suppliers he does business with.

Some potential and existing customers with questionable financial histories may nevertheless be safe enough to contract with - if the custom operator takes precautions.

"You can, with the customer's and lender's cooperation, obtain a letter of credit assuring prompt payment of an agreed-upon price or fee," Wetter adds.

If you're really nervous about getting paid by a potential customer, you could obtain a security interest from the farmer - with his approval.

In the security agreement, the farmer would agree to pledge collateral to secure payment. The security documents would allow you to collect against the collateral in the event of non-payment, as long as the farmer's solvent.

Taking a non-paying farmer to court - or at least threatening to do so - is another option. Going to court, however, is time-consuming and costly.

A custom harvester has another responsibility before he can expect a bill to be paid. That's to send one out, says Wetter.

"Many custom operators don't send a bill."

There's no reason not to charge customers interest. Wetter suggests charging 1.5% interest per month beginning 30 days after the bill is sent. "If you don't, what's the incentive for the farmer to pay you?"