FREQUENTLY ASKED QUESTIONS
What does P.A.C.A. stand for?
The term "PACA" is simply an acronym for Perishable Agricultural Commodities Act. It was signed into law back in 1930 to establish a standard code of ethics among buyers and sellers of fresh or frozen fruits and vegetables. The law was amended in 1984 to add the PACA trust provisions and again in 1995 to streamline the manner in which a seller preserves or "locks in" those PACA trust rights.
How do I know if I need a license?
The USDA requires a license for any entity that qualifies as a "dealer". Basically, any entity that buys or contracts in wholesale quantities. For
PACA purposes, "wholesale" means more than 2,000 lbs. at time or loads valued at more than $230,000 in any given year.
What if my buyer does not have a USDA license?
It matters very little if they had one, but matters a lot if they should have had one. Think of driver who gets pulled over for speeding and claims
they cannot get a ticket because they have no driver's license. If they were driving the car at the time it was speeding, they will get 2 tickets. If the
buyer qualifies as a "dealer" of wholesale quantities of produce, then they were required to have a USDA license and you can still stick them under
the PACA trust. However, because the USDA process of collecting can only suspend the buyer's license if the buyer refuses to pay, it limits the
effectiveness of that avenue of collection.
Does the load have to cross state lines to enforce PACA rights?
No. A load only needs to physically cross state lines to utilize the USDA formal or informal process. Courts of law will take all claims from unpaid
sellers whereas the USDA limits itself to dealing only with loads that physically cross state lines. Besides, the USDA does not enforce trust rights,
only courts can do that. The USDA simply enforces the code of ethics among buyers and sellers. If the buyer company closes, files bankruptcy or
simply begins operating under another USDA license, you will still remain unpaid.
What does the USDA do to help me recover unpaid invoices?
The USDA enforces a statutory code of ethics among buyers and sellers of produce. The USDA accepts complaints against defaulting parties in
the form of informal complaints started by a simple letter and more detailed complaints called, plainly enough, "formal complaints" that closely
resemble papers filed in a court of law. In essence, the USDA is a kind of mediation service that tries to convince the defaulting buyer to honor its
deal by paying the invoices.
When do I use the USDA versus going to court?
If you believe the Debtor has plenty of money but is just refusing to pay because he thinks he is right and won't change that belief until he hears it
from a third party "referee", then the USDA is a fine place to start out. However, if you have any reason to believe the Debtor is not paying
because funds are tight and he cannot pay you and his bank, landlord, payroll and other obligations, then the USDA may not be able to help fast
enough. That is when direct and immediate access to court of law is essential. If you move too late, you will be left holding a claim against a dead
company with no assets left. If you move quickly enough, your chances of getting paid in full are much closer to 100%. If anything experience has
shown, the longer you wait to enforce trust rights, the less you will recover on your claim.
What payment terms are allowed under the PACA?
The USDA default terms are Net 10 Days. You can extend the terms up to a maximum of Net 30 Days, but the risks go up quite a bit after Net
10. Over Net 30, you will not be covered under the PACA trust.
What if my buyer files a bankruptcy petition?
The PACA trust allows you to recover from the company's produce-related assets before any other creditor gets a penny. On top of that, you
also get to hold the owners personally liable for any short-fall if the company's assets were insufficient to fully satisfy your claim.
Does a bankruptcy insulate the buyer company or its owners from liability?
No. A PACA trust claim remains unaffected by the bankruptcy, although you need to take some action in the case to preserve these trust rights
from being wiped out or "discharged".
What products does the PACA trust cover?
The PACA trust covers all fresh or frozen produce and all products made from that produce. It also covers the receivables generated from the
sale of produce and anything the Debtor bought with those produce-related funds.
Why are trust rights so important to keep safe?
When a company becomes insolvent or files bankruptcy, there is always more debt than funds to pay that debt. Accordingly, it becomes very
important to move your way up the line to make sure there is enough left for your claim when it is "your turn" to get paid. The PACA trust places
your claim at the head of the line. PACA trust claims get paid first, then the left over funds go to pay other, less fortunate creditors. If you lose that
PACA trust status, your claim will go to the end of the line where you can expect pennies on the dollar, if anything.
How long does the PACA trust last?
The trust starts with the buyer's first transaction in produce and does not end until all trust claims against the buyer are paid in full.
How do you "lock in" my PACA trust rights?
If you do not hold a USDA license, you will need to preserve trust rights the "old way" or notice method by sending a separate notice to the buyer
(within 30 days of the date payment was due) advising that buyer you intend to preserve your trust rights to specified invoices. If you hold a
USDA license, your invoice itself can serve as the notice if you include the following language on the face of all your invoices:
The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by Section 5c 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.
Can the USDA enforce my PACA trust rights?
No. The PACA trust is what they call a "self-help" tool that you have to enforce yourself. This is done in a court of law because the USDA is
limited to enforcing the code of conduct among buyers and sellers. Unfortunately, the USDA cannot enter judgments or enforce those judgments
to force any buyer to pay, it is all a voluntary compliance system at present.
Are my rights to collect limited to the buyer's company or can I hold the owners liable too?
The PACA trust claim allows you to collect first from the Company, but secondarily from any officer or owner that actively managed the affairs of
If suppliers are coming after me, can I be held personally liable for my company's debts?
Yes, for the same reasons stated above.
What if I know my buyer is paying another seller, but not me?
The PACA trust means you are entitled to be paid ahead of all other creditors below PACA level. However, there is no obligation on the buyer to
pay all creditors equally until there is proof of the Debtor not having enough to "go around". Because of this, the sooner you move to enforce your
trust rights, the more likely you are going to recover. It really IS that simple.
Do I need a lawyer to enforce PACA trust rights?
PACA trust rights can only be enforced in a court of law. Because courts require corporations and other legal entities to be represented by a
lawyer, there is no feasible way around that one. If you are operating a business as a sole proprietorship without any corporate form, it is a very
risky way to conduct business, but the courts may allow you to be your own lawyer in such a case. It is not a very good idea, but it may be
Who pays for collection actions against the buyer?
That depends on the terms of your agreement with the buyer. This firm has always urged its clients to include the following language on all its invoices to shift the costs of collection onto the defaulting buyer:
Buyer agrees to pay all costs of collection, including attorneys' fees.
Past due balances shall accrue interest at 1.5% per month (18% APR).
This firm has led the charge to obtain PACA coverage of attorneys' fees to reimburse you for the cost of enforcing a PACA trust claim. It is only fair that the buyer which caused these extra expenses should be the one that ultimately repays you for the outlays. Amazingly enough, other attorneys who practice in this field of law have actually fought against your right to recover these fees from the defaulting buyer. Because this firm represents sellers/creditors only, we are not caught in the middle of such conflicts of interest between what is good for a seller and what helps the defaulting buyer/debtor.