By Bryan Nickerson
Manager, Trade Practices, Western Growers
Reprinted with Permission from Western Growers
Timely and verified rejections of fresh commodities at contract destination do occur, making it very important to know precisely how to handle your next moves. Once a contract has been amended, the seller must know how to hold the handler accountable to ensure they’ve maximized the forwarded net proceeds once all sales are completed. In this blog, I will cover what criteria makes-up a detailed account of sale and I will share a mock-accounting that you should always expect to see from the receiver when you are reconciling.
When a buyer rejects a load of produce at destination for failing to meet “Good Arrival” or you otherwise contemplate moving a load of produce under a consignment agreement, you are entering into an agency relationship with a commission merchant selling your produce for the benefit of your company on a consignment basis. The only time a detailed accounting is required to be submitted by the consignee (the company selling your product) is on a consignment transaction. Be advised that using terms like Price After Sale or Open are not recognized under the federal PACA statute, therefore granting no protection and leaving your company vulnerable.
In a consignment, you as the shipper remain the beneficial owner of the product, until the receiver sells the product on your behalf in a prompt and proper manner. Following the completion of the sale of the product, the receiver is permitted to deduct usual and customary expenses directly connected to the sale, which you and the receiver should have previously agreed upon.
So the question becomes, “What information is required on the accounting and what is considered a detailed account of sale?” There are five main components of a detailed account of sales:
Date product was physically received at the receivers facility
Lot number(s) must be assigned to the product(s) received
The date and the amount sold on a given date along with the respective gross selling prices
For any discarded product over 5%, a dump slip or donation receipt must be provided, or a federal inspection showing the product has no commercial value on the dump date
Reasonable and customary expenses by the receiver should also have all corresponding documents, including copies of the paid freight bill, USDA inspection, if any, donation receipts and dump slips, as well as any other miscellaneous expenses (if any) incurred in the handling of the product. The following link is a sample accounting reflecting all five components of an account of sale.
If any one of these components are missing from the accounting provided by the receiver (commission merchant) selling your product, then the receiver has failed to properly account and fully document the sales of the product being consigned. Failing to supply a full detailed accounting containing the information above could lead to the receiver being potentially responsible for the ‘Fair Market Value” of the product. That formula for fair market value could be the USDA Federal State Market News Quotes for your product at time of arrival.
As the shipper and beneficial owner, stay informed about the daily sales activity on your product, and always scrutinize the accounting provided to you. If you have concerns about the information, or lack of information, contained on an accounting you receive, please contact me so we can review and discuss.
If we speculate that the accounting is not complete and accurate, you have the right to request the assistance of the PACA division in performing an audit of the complete records of the commission merchant that handled your product. Remember, the only time your receiver is obligated to give you an account of sales is when both parties have agreed to consignment handling of your product.
As always should you have any questions concerning the required documentation and consignment transaction or the components that make up a detail account of sales, please do not hesitate to contact me at 949-885-2392 or email firstname.lastname@example.org.