If you are a produce grower, you know that time is your enemy. It is a constant race against the clock to get your produce harvested, shipped, invoiced and the money collected before the produce spoils. Timely payment is critical, because you have nothing but spoiled produce to recover if you have trouble getting payment from your customer. Without some mechanism in place to protect produce growers against loss from nonpayment the produce market would be dysfunctional.
In 1930 Congress enacted the Perishable Agricultural Commodities Act (PACA) to protect growers, distributors and others who deal in fresh and frozen fruits and vegetables from unfair and fraudulent practices including nonpayment of invoices. To take advantage of the protection afforded under PACA, a grower must have a valid PACA license from the U.S. Department of Agriculture (USDA) and comply with the provisions of the Act. When the provisions of PACA are properly complied with, a grower sells under the protection available from a trust administered by the USDA.
INVOICE PAYMENT TERMS
A key requirement of PACA is the invoice payment terms. PACA specifies prompt payment which is defined as payment within 10 days. A seller and buyer may agree to payment of no more than 30 days, but the agreement must be in writing. The payment terms on the invoice must match the terms on the payment terms agreement.
Another key requirement of PACA is that the invoice include the following 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.”
An invoice with this statement in effect acts as notice to the buyer that the seller intends to pursue the benefits available under the PACA trust.
NOTICE OF LATE PAYMENT
If the buyer does not make payment according to the terms of the invoice, the grower must send an invoice to the buyer within 30 days after the payment due date or the date of the notice from the seller’s bank that the buyer’s check will not clear the bank.
As with all matters of a legal nature, it is important to seek the advice of legal counsel regarding the requirements of and compliance with the terms of PACA.
SOFTWARE TO SUPPORT PACA
It is also important to have an automated accounts receivable software, like the package offered by Lockstep Collect, to support the invoicing and collection of PACA accounts receivable. Functionality should include the ability to group PACA accounts and flag PACA invoices. Invoicing should indicate a PACA account, include the PACA notice statement, and have a clearly marked due date which agrees with PACA payment terms or a written payment terms agreement.
If you are a produce grower, consider taking advantage of the protection under PACA and make sure that you have automated accounts receivable software to support it.