A final note on Perishable Agricultural Commodities Act (the PACA) payment terms: industry veterans will no doubt remember being in the awkward position of not being able to agree to a payment schedule with delinquent buyers for fear of being guilty of extending payment terms beyond thirty (30) days and therefore forfeiting their trust rights.
Suppliers who wanted to give their cash-strapped customers more time would have to acknowledge the possibility that they would accept a payment schedule with a “wink and a nod.”
Thankfully, common sense prevailed, and PACA regulations now make it clear that agreeing to a payment schedule after the buyer defaults will not forfeit your trust rights: If there is a default in payment as defined in Sec. 46.46(a)(3), the seller, supplier, or agent who has met the eligibility requirements of paragraphs (e)(1) and (2) of this section will not forfeit eligibility under the trust by agreeing in any manner to a schedule for payment of the past due amount or by accepting a partial payment. (7 C.F.R. 46.46(e)(3))
In addition to complying with PACA payment terms, you must also give notice to buyers of your intent to invoke your trust rights within thirty (30) days of the obligation becoming past due.
This is spelled out in paragraph (f )(1) of 7 C.F.R. 46.46 which provides—Notice of intent to preserve benefits under the trust must be in writing, must include the statement that it is a notice of intent to preserve trust benefits and must include information which establishes for each shipment: (i) The names and addresses of the trust beneficiary, seller-supplier, commission merchant, or agent and the debtor, as applicable, (ii) The date of the transaction, commodity, invoice price, and terms of payment (if appropriate), (iii) The date of receipt of notice that a payment instrument has been dishonored (if appropriate), and (iv) The amount past due and unpaid; except that if a supplier, seller or agent engages a commission merchant or growers’ agent to sell or market their produce, the supplier, seller or agent that has not received a final accounting from the commission merchant or growers’ agent shall only be required to provide information in sufficient detail to identify the transaction subject to the trust.
As you read through this requirement you may be thinking, “But we don’t do this”—and if you’re a PACA licensee, the reason you don’t do this is because of paragraph (f )(3), which gives you a much easier way to secure your trust rights—Licensees may choose an alternate method of preserving trust benefits from the requirements described in paragraphs (f )(1) and (2) of this section. Licensees may use their invoice or other billing statement as defined in paragraph (a)(5) of this section, whether in documentary or electronic form, to preserve trust benefits. Alternately, the licensee’s invoice or other billing statement, given to the buyer, must contain: (i) The statement: “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 or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.”; and (ii) The terms of payment if they differ from prompt payment set out in section 46.2(z) and (aa) of this part, and the parties have expressly agreed to such terms in writing before the affected transactions occur.
By simply putting this language on invoices—(including invoices in electronic form per 7 C.F.R. 46.46(f)(4))— you, as a PACA licensee, satisfy the trust’s notice requirement.
For our supplier friends in other countries, the good news is you may enjoy the benefits of the PACA trust when selling to a buyer in the United States. The bad news, however, is that you, as a foreign supplier (and therefore unlicensed under PACA) cannot effectively give notice with this language on your invoices.
Instead, you will need to preserve your PACA trust rights by filing notice with your past due buyers within thirty (30) days of the obligation becoming past due. If this administrative task falls through the cracks, so too will the benefits of the PACA trust you may otherwise have enjoyed.
The PACA trust gives the produce industry a measure of financial security. The entire industry, buyers and sellers alike, benefits when produce revenue is returned to the produce supply chain. Kudos to Kroger and other big buyers who appreciate its importance.
