The salesperson’s new candidate for credit survived scrutiny, and its finances look good on paper.
Now it’s time to decide how much credit to grant, and the limit shouldn’t be random or vary broadly from other customers of the same type or financial status.
Nicole Flacco, credit and collections supervisor for Dole Fresh Fruit Company BB #:111521 in Westlake Village, CA, explains: “Our main objective is to balance Dole’s exposure with an appropriate customer credit line extension to maximize sales and profits.”
By ensuring the amount of credit issued is appropriate for the customer’s financial standing, Dole Fresh Fruit can safely sell product on credit, Flacco says. “We know the customer is good for the credit, and the odds of collecting on the account are strong.”
Flacco further explains that the amount of credit extended is based on weekly sales averages and business need, which helps keep the customer’s payment timing within an acceptable trend.
Coinciding with the issuance of credit is setting payment terms. Although the default is 30 days for many industries, fresh produce is different with the Perishable Agricultural Commodities Act (PACA) defining “full payment promptly” as payment made within 10 days of product acceptance (e.g., by unloading) for most types of sales.
This isn’t to say buyers and sellers can’t agree to different terms, but any such agreement (such as 21 days) must be documented in a separate agreement between the parties.
Additionally, produce sellers should always remember that payment terms greater than 30 days will forfeit PACA trust protection, effectively putting a maximum 30-day limit on payment terms extended in the produce industry.
This is an excerpt from the Credit & Finance Department in the November/December 2021 issue of Produce Blueprints Magazine. Click here to read the whole issue.
