Cancel OK

New Hire Academy: Part 2 of 3

Eight to keep straight: “must-know” PACA trust principles and rules

Principle #4 –
Are my sales eligible for trust protection?

To qualify as a PACA trust beneficiary, a seller will first need to show that a transaction was eligible for trust protection.  A transaction is eligible so long as the sale involves interstate or foreign commerce, and the buyer either has a valid PACA license, or is operating subject to a PACA license (and therefore should have one).

Buyers in the United States or U.S. territories that purchase 2,000 pounds of perishable agricultural commodities in a single day are subject to PACA licensing, as are retailers with cumulative annual purchases in excess of $230,000.  Sales to restaurants in these quantities may also be eligible for trust protection even though no PACA license is required.  And although it may come as a surprise to some, foreign sellers are eligible for PACA trust protection when selling to buyers within the United States.

Principle #5 –
Payment terms greater than 30 days? Just say no.

Sellers wishing to invoke the PACA trust must comply with very specific requirements.  First, payment terms must not exceed 30 days.  Congress intended the trust to apply only to short-term payment transactions.  The regulations specifically set forth 10-day payment terms (i.e., 10 days from acceptance of the produce) as the standard, sometimes referred to as “PACA Prompt.”

When terms greater than 10 days (but less than 30 days) are agreed to, these extended terms must be memorialized in a pre-transaction written agreement, and must be properly noted on all invoices and billing statements to avoid the risk of forfeiting PACA trust rights.

In no event may a seller extend payment terms beyond 30 days prior to the buyer’s default on the original terms and still qualify for trust protection.

Principle #6 –
PACA licensees can do this the easy way or the hard way…

Sellers looking to invoke their PACA trust rights must first prove they have given the buyer timely and proper notice that the sale is subject to PACA trust protection.

There are two different ways to provide this notice. By far, the easiest way is to simply include the following language in its entirety on your invoices— 

The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. §499e(c)).  The seller of these commodities retains a trust claim over these commodities, all inventories of food and other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received. 

This method is only available to PACA licensees.  Unlicensed sellers, typically growers and foreign sellers, need to provide their buyers with separate written trust notices within 30 days of their invoices becoming past due.  This latter method is tedious, but done correctly, it will meet the notice requirement of the PACA trust.