Cash is king. Long live the king.
This is the cry, shouted from the rooftops, by business owners and CFOs, especially in economic downturns. When times get tough, cash, and how it is wisely and sparingly applied, makes all the difference regarding whether a business will continue to operate.
But where does cash come from?
The simple answer: from accounts receivable—promises made by buyers to sellers, to pay within a certain period of time.
For example, a grower sells strawberries to a distributor, who promises to pay in 30 days. In 30 days, the distributor sends payment and the accounts receivable or A/R is settled, leaving the seller with extra cash.
These receivables are not backed by collateral; rather, they are unsecured credit instruments, backed by nothing more than good intentions.
If the good intentions are not fulfilled, a buyer receives nothing. Uncollected A/R is a stinging and painful rebuke by the buyer to the seller.
The produce industry is a throwback. Buying and selling produce and related products and services have forever been based on verbal handshakes—unsecured contracts made over the phone or electronically.
Very few, if any other industries, operate in such a manner. Why does the industry continue to use such loose and potentially dangerous unsecured promises?
The answer: because we can.
Produce has been, and remains today, an industry based on TRUST, the fulfillment of one’s word.
No trust, no cash, no business. Very basic.
If the buying and selling of produce ever moves away from the time-honored method of trusted dealings, I would be very sad.
How about you?
