Payment Terms for Produce Sales – Why They Need to Be Consistent on All Documents
Many articles about produce sale transactions focus on various issues that relate to the payment terms for produce sales – such as the 30-day maximum term, the necessity of a payment term agreement if the terms differ from the 10-day PACA prompt, and the danger of payment agreements that extend the terms beyond the 30-day limit. When a produce sale has payment terms other than 10 days, PACA requires the buyer and seller to enter into a written agreement before the transaction reflecting those terms. It also requires disclosure of the terms that the buyer and seller agree on all documents associated with the transaction. For example, if the buyer and seller agree to 21-day payment terms, all documents associated with the sale that contain the payment terms must reflect payment terms of 21 days. If the terms on the invoice or other documents differ from those agreed to, then the seller’s PACA trust protection is lost.
A novel issue regarding payment terms was addressed in a recent decision issued by the Bankruptcy Court in the Northern District of Illinois. In the case of G and G Peppers, LLC v. Ebro Foods, Inc., Ebro Foods’ purchase orders included payment terms of “Net 30 days." The POs also stated "To ensure that this order was received and processed, please sign and return via fax." G&G signed and returned each PO to Ebro, and proceeded to sell and deliver the product to Ebro. The invoices issued by G&G set forth PACA terms of 10 days. When Ebro failed to pay, G&G sought enforcement of its PACA trust rights. Ebro argued that the PO functioned as a pre-transaction agreement to 30-day payment terms, and since those terms were not reflected on G&G’s invoices, G&G failed to preserve its PACA trust rights. G&G argued that the purchase orders do not constitute a pre-transaction written agreement. The Court rejected this argument, finding that by signing the purchase orders and proceeding to deliver the product, G&G accepted the terms set forth in those POs, and the POs served as a written agreement between the parties. In light of this ruling, it is important for all sellers to carefully read the terms on any purchase order or confirmation received from the customer. If the terms on the customer’s documents differ from those on the seller’s invoice, statement or other documents, then the seller may jeopardize its PACA trust protection. If you receive any document from your customer that you are unsure of, we encourage you to either send a written objection to the buyer, or seek legal advice on whether this term poses a risk to your PACA trust protection.