Current record high milk prices accompanied by low to moderate feed costs have increased the profitability of dairy farming. However, milk prices are cyclical, and careful reinvestment of present windfalls is vital to long-term profitability. A logical first step is to pay off the bills. Examples include feed purchases, equipment supplies, health supplies, fuel, and veterinary bills. Prompt payment saves service charges, and service providers will be more eager to do business during times when meeting obligations is more difficult.
Some creditors provide a cash discount for paying bills quickly.
Payment of short-term bills also helps improve the current liabilities section of the balance sheet. This, in turn, may make it easier to borrow future money, because many lenders see large current liabilities as a warning that an existing dairy has not cash-flowed. Paying off short-term loans and revolving credit lines is the next logical step. These loans are intended to provide a cushion during tight milk prices and for unexpected repairs or emergencies. By paying off these obligations now, it may be easier to obtain cash if emergencies are encountered when operating margins are tight.