As a grower, you know how important it is to be paid promptly for your produce. You have workers to pay, supplies to purchase, and machinery and facilities to maintain. Usually, buyers have 10 days from the date of receipt of produce to pay for the goods “promptly” and up to 30 days to make a delayed payment. When payment is still missing after 30 days or the payment has been dishonored, the Perishable Agricultural Commodities Act provides an avenue for remedy. Read more about it below.
The Perishable Agricultural Commodities Act
Enacted in 1930, the Perishable Agricultural Commodities Act regulates the sale and purchase of fresh and frozen agricultural produce so that growers can be sure they will be paid — even if the buyer becomes bankrupt or goes out of business. The Act forms part of Title 7 of the United States Code and can be found here.
The way that the PACA Act works is that both sellers and buyers of fresh and frozen produce need to apply for a license in order to do business, and the money paid for these licenses goes towards creating a trust program that sellers can access if a buyer does not honor a payment agreement.
Who the PACA Act Affects
The payment of licenses has to be economically viable, so the Perishable Agricultural Commodities Act is restricted to sellers and buyers who sell at least 2,000 pounds of fresh or frozen produce on any given day. This affects everyone along the supply chain, including:
- Grocery wholesalers
- Foodservice firms
People who negotiate fruit and vegetable sales are also subject to the regulations set forth by the PACA Act and need to obtain a license before performing the first transaction. This includes:
- Commission merchants
- Growers’ agents
In contrast to commission merchants and growers’ agents, brokers who only deal with frozen fruits and vegetables (not fresh) only need to obtain a license once their invoiced sales exceed $230,000 in the same calendar year. This minimum threshold amount also applies to retail sellers who provide both fresh and frozen produce to their customers.
How to Ensure Your Rights Under the Perishable Agricultural Commodities Act
Once licensed, there are a few other steps you need to take to ensure eligibility for recourse under the Perishable Agricultural Commodities Act. The first and most important step is to keep copies of all of your sale invoices with a clearly dated system and follow up any instances of non-payment within 30 days after the payment was due. If the payment is dishonored or remains unpaid after you’ve notified the buyer, you then have nine months from the date of the violation to file an informal complaint via the ePaca Portal.
The second step that is recommended is for sellers and agents to include the following statutory statement on their 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 or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.
By including this statement, you are effectively warning the buyer in advance and removing the legal necessity of notifying the buyer in writing within 30 days if the account is not paid.
What about COVID-19?
The COVID-19 crisis has affected food and hospitality services from restaurants and school cafeterias all the way up the supply chain to orchardists and crop growers. Some businesses have been forced to close or have declared bankruptcy before settling their accounts. In these circumstances, there are several things to keep in mind when seeking to settle an unpaid account:
- The Usual Time Limits Still Apply
As the filing deadlines in the Perishable Agricultural Commodities Act are set by statute and regulation, there are no additional days given to buyers for payment or to sellers for filing a complaint due to COVID-19. If you accept new payment terms beyond the 30-day time limit, you are automatically disqualifying yourself from the protections provided by the PACA Act.
- Payment Plans Are a Good Way to Go
To make things easier for buyers who are struggling financially, the Perishable Agricultural Commodities Act does allow you to receive a partial payment within 30 days from the receipt of produce and still qualify for PACA trust protections. This means that you can negotiate a gradual payment plan with the buyer before the 30 days are up while still ensuring legal protection.
- You Get Priority If the Seller Goes Bankrupt
Unfortunately, some restaurants and produce sellers have already become insolvent during this crisis, and at least 16 restaurant chains have filed for bankruptcy. According to the Perishable Agricultural Commodities Act, unpaid produce sellers have priority over assets recovered from a buyer during bankruptcy before other creditors — so you can hope to receive at least a partial payment in these situations by following the processes laid out in the PACA Act.
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