(UPDATED, March 22) With the uncertainty of the effects of COVID-19 on business, any company selling produce should not extend payment terms past 30 days, thereby waiving protections under the Perishable Agricultural Commodities Act Trust, according to the United Fresh Produce Association.
The U.S. Department of Agriculture’s PACA branch has confirmed that all sellers of produce — growers, shippers, wholesalers and others — that entering into extended payment terms past 30 days before the initial 30-day period is over prevents sellers to receive the preferential treatment that the PACA Trust ensures, according to a United Fresh member alert on March 20.
“We know that many companies want to cooperate with one another, but extending terms before the end of the 30-day period waives your PACA trust rights and the ability to have preferential trust rights in the event of your customer’s bankruptcy,” according to the United Fresh e-mail.
Sellers can agree to a partial payment plan after the initial 30-day period, according to the association, and still maintain PACA trust rights.
The specific rules governing this, according to United Fresh are from the PACA Section 46.46.(e)3:
“If there is a default payment as defined in 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 they trust by agreeing in any manner to a schedule for payment of the past due amount or by accepting a partial payment.”
“We are working diligently on support for the sector and those that are facing financial devastation, but you should all be keeping detailed financial records and this is one step that you should be sure to follow in any case,” according to the member alert.
Jason Klinowski, agriculture and food law attorney at Wallace, Jordan, Ratliff & Brandt, L.L.C., said it is important that produce suppliers don’t extend their payment terms beyond 30 days.
“I do appreciate the notice because there’s a lot of folks who are calling around and are asking very specifically for longer payment terms, just so they can weather the storm,” he said. However, Klinowski said care must be taken to preserve PACA trust rights, and the limit for payment terms to protect trust rights is 30 days.
Once an invoice is in default, Klinowski said a post-default payment plan can be agreed to and implemented. Those post-default agreements must be limited to invoices in default, he said.
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