USDA rules that electronic invoicing is protected by PACA
USDA rules that electronic invoicing is protected by PACA
The PACA branch of the U.S. Department of Agriculture has determined that electronic invoicing, with the proper verbiage, does protect a seller's rights under the Perishable Agriculture Commodities Act Trust Provision.
The PACA Trust is a regulation that essentially puts sellers of produce in a priority position in the event that the buyer of their product files for bankruptcy protection and has not paid the provider for the fruits and vegetables that are part of the seller's inventory or accounts receivables. Amendments, new regulations and case law have defined the PACA Trust over the past decade concerning many issues including how a shipper protects his or her rights. One such amendment determined that the proper wording on an invoice was sufficient for a shipper to notify the receiver of his PACA Trust rights, and his intent to preserve those rights.
This newest issue arose because more and more shippers, at the request of retailers and other buyers, are sending invoices electronically, usually through third-party service providers. The cost of those electronic transmissions sometimes is determined by their length, so some buyers were not downloading or accepting the PACA Trust verbiage.
Tom Oliveri, director of commodity services and trade practices for Western Growers Association, said that the issue first surfaced during a meeting of the USDA's Fruit & Vegetable Industry Advisory Board.
Subsequently, WGA and other grower-shipper representatives took up the issue and lobbied the PACA branch of the USDA to address it. PACA did initiate a rule-making proceeding and accepted dozens of comments on the subjects. In the process, PACA determined that the PACA Trust language was not being received by the buyer in many instances when electronic invoicing was involved.
Mr. Oliveri said that PACA identified numerous situations when the wording was omitted from an electronic invoice. In some instances, the buyer's system was not set up to receive it, and in other cases, the buyer simply opted to not have it transmitted. There were also situations where the data field including that language was not being translated by the third-party invoice provider.
The new regulation specifically requires the buyer or a third-party representative to accept the PACA Trust notice as part of the submission of any invoice whether it is received as a paper invoice or electronically. Additionally, buyers must make space available in their data interchange program to receive this information. Finally, failure to do so is considered a violation of the act.
The Federal Register posting of this final rule on May 30 indicated that the PACA received 41 comments on the proposed rule, all of which favored it. Though there has not been a situation where the preservation of PACA Trust rights in an electronic invoice was the subject of a court challenge, Mr. Oliveri said that it was only a matter of time before this issue would have surfaced in a bankruptcy case.
Which firms receive priority position in a bankruptcy proceeding is typically one of the top issues litigated in any such case.
"This is a very important decision and one that Western Growers has been advocating for quite some time," he said. "We actively supported this position and believe it clarifies and preserves a very important right."
Although there was some consideration that the new PACA regulation also deal with the cost of transmitting this notice of intent to preserve one's PACA Trust rights electronically, the new rule does not address that issue.
Consistent with federal regulation procedures, this new regulation becomes effective June 29, which is 30 days after its posting in the Federal Register. For the most part, Mr. Oliveri said that sellers and buyers would continue to operate as they have in the past with only minor changes necessary in most computer invoicing programs.
The PACA Trust is a regulation that essentially puts sellers of produce in a priority position in the event that the buyer of their product files for bankruptcy protection and has not paid the provider for the fruits and vegetables that are part of the seller's inventory or accounts receivables. Amendments, new regulations and case law have defined the PACA Trust over the past decade concerning many issues including how a shipper protects his or her rights. One such amendment determined that the proper wording on an invoice was sufficient for a shipper to notify the receiver of his PACA Trust rights, and his intent to preserve those rights.
This newest issue arose because more and more shippers, at the request of retailers and other buyers, are sending invoices electronically, usually through third-party service providers. The cost of those electronic transmissions sometimes is determined by their length, so some buyers were not downloading or accepting the PACA Trust verbiage.
Tom Oliveri, director of commodity services and trade practices for Western Growers Association, said that the issue first surfaced during a meeting of the USDA's Fruit & Vegetable Industry Advisory Board.
Subsequently, WGA and other grower-shipper representatives took up the issue and lobbied the PACA branch of the USDA to address it. PACA did initiate a rule-making proceeding and accepted dozens of comments on the subjects. In the process, PACA determined that the PACA Trust language was not being received by the buyer in many instances when electronic invoicing was involved.
Mr. Oliveri said that PACA identified numerous situations when the wording was omitted from an electronic invoice. In some instances, the buyer's system was not set up to receive it, and in other cases, the buyer simply opted to not have it transmitted. There were also situations where the data field including that language was not being translated by the third-party invoice provider.
The new regulation specifically requires the buyer or a third-party representative to accept the PACA Trust notice as part of the submission of any invoice whether it is received as a paper invoice or electronically. Additionally, buyers must make space available in their data interchange program to receive this information. Finally, failure to do so is considered a violation of the act.
The Federal Register posting of this final rule on May 30 indicated that the PACA received 41 comments on the proposed rule, all of which favored it. Though there has not been a situation where the preservation of PACA Trust rights in an electronic invoice was the subject of a court challenge, Mr. Oliveri said that it was only a matter of time before this issue would have surfaced in a bankruptcy case.
Which firms receive priority position in a bankruptcy proceeding is typically one of the top issues litigated in any such case.
"This is a very important decision and one that Western Growers has been advocating for quite some time," he said. "We actively supported this position and believe it clarifies and preserves a very important right."
Although there was some consideration that the new PACA regulation also deal with the cost of transmitting this notice of intent to preserve one's PACA Trust rights electronically, the new rule does not address that issue.
Consistent with federal regulation procedures, this new regulation becomes effective June 29, which is 30 days after its posting in the Federal Register. For the most part, Mr. Oliveri said that sellers and buyers would continue to operate as they have in the past with only minor changes necessary in most computer invoicing programs.
