At the Time of the Deal
To be eligible for trust protection the correct payment term must appear on the invoice no matter what method of trust preservation is used. Unless there is an agreement in writing entered into before the transaction, payment terms are ten (10) days from date of delivery of the produce. It does not matter if there is an oral agreement as to different terms, or if there was a course of dealing in which the buyer or agent always pays beyond 10 days. Without a written agreement before the transaction, the payment period is 10 days. When there is no written payment agreement, putting “PACA Terms” on the invoice, or other shipping and/or billing documents suffices.
If payment terms are extended by a written agreement, then the new payment term must be stated on the invoice to preserve trust rights. Payment terms entered into before the transaction that are beyond 30 days from delivery of the produce result in a loss of a seller’s trust rights.
After a Failure to Pay
If a seller preserves its trust rights, and a buyer does not pay, a seller can agree to a payment plan for the past due amount, orally or in writing, without losing its trust rights. This allows sellers to obtain payment informally without going to court, and without waiving trust rights. If the informal payment arrangement does not work, a seller can still hire an attorney to take legal action under the trust.
Restaurants do not have to be licensed under PACA. However, restaurants which buy wholesale quantities of produce are subject to the PACA trust. So, if a restaurant is not paying or goes bankrupt, produce suppliers are entitled to payment from the trust assets before anyone else, provided the seller preserved its trust rights as explained above. The trust also extends to cruise lines.
The problem with enforcing trust rights against restaurants is proving they buy wholesale quantities of produce, which is at least one (1) ton in any one day. Sometimes, a single restaurant does not qualify. But a restaurant with three (3) or more locations almost always qualifies.