The PACA Trust: How Produce Sellers Get Paid First When a Buyer Goes Bankrupt

You shipped three truckloads of fresh tomatoes to a distributor. The invoice is 45 days past due, your calls go to voicemail, and this morning you learned the distributor filed for bankruptcy. Every other unsecured creditor is about to fight over pennies on the dollar — but you may have a legal fast lane that puts you at the front of the line. If you sell fresh or frozen fruits and vegetables in interstate commerce, a federal law from 1930 gives you one of the strongest payment protections in American business: the PACA trust.

What the PACA Trust Is and Why It Exists​

The Perishable Agricultural Commodities Act (PACA), enacted in 1930 and administered by the U.S. Department of Agriculture's Agricultural Marketing Service, regulates fair trading in the fresh and frozen produce industry. Congress created it for a simple reason: produce rots. A seller of tomatoes or lettuce cannot repossess and resell week-old inventory the way an equipment dealer can, so ordinary collection remedies arrive too late to matter.

The centerpiece of the law is the statutory trust at 7 U.S.C. Section 499e(c). The moment your buyer takes possession of your produce, a trust springs into existence by operation of law — no contract clause required. The trust covers:

• The produce itself, while the buyer still holds it
• Any inventory of food or other products derived from it
• All receivables and cash proceeds from reselling it

Those assets are held in trust for your benefit until you receive full payment. In practical terms, the money your buyer collects from reselling your produce is legally your money first, not the buyer's general operating cash.

Who Is Covered — and What Produce Counts​

The commodities​

PACA covers fresh and frozen fruits and vegetables only. Apples, oranges, broccoli, corn, bagged salads, frozen berries — all covered. The moment produce is processed another way (canned, dried, pickled, juiced into a manufactured product), it generally falls outside the statute. Grains, meat, dairy, eggs, and seafood are not covered either.

The sellers​

Growers, shippers, distributors, wholesalers, brokers, and commission merchants who sell covered produce in interstate or foreign commerce can all hold trust rights. Note that "interstate commerce" is interpreted broadly: produce grown in your state but shipped across a state line at any point in the chain typically qualifies.

The buyers​

Virtually everyone who buys covered produce in wholesale quantities is subject to PACA's licensing rules. In general, any person who buys or sells more than 2,000 pounds of fresh or frozen fruits and vegetables in any single day must hold a PACA license. Retailers and food-service dealers need a license once the invoice cost of their produce purchases exceeds $230,000 in a calendar year. Growers who sell only what they grow themselves are not required to be licensed — but many get licensed anyway, for a reason explained below.

Prompt Payment: The 10-Day Rule​

PACA defines prompt payment precisely: full payment within 10 days after the day the produce is accepted, unless the buyer and seller agree in writing before the sale to different terms. That pre-sale written agreement is essential — a handshake to "pay in a few weeks" after delivery does not satisfy the rule.

There is also a ceiling that matters enormously for the trust: to preserve trust protection, your payment terms cannot exceed 30 days. Agree to 45- or 60-day terms and you forfeit the trust entirely, even if you do everything else right. This is the single most common way sellers lose PACA protection — generous terms feel customer-friendly until the customer goes broke.

Preserving Your Trust Rights: The 30-Day Deadline​

The trust arises automatically, but keeping it requires action within a strict window. Miss the deadline and the protection evaporates.

If you hold a PACA license: the invoice method​

Licensed sellers can preserve trust rights effortlessly by printing exact statutory language on every invoice and billing statement in the ordinary course of business:

The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by section 5(c) 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.

Use the wording verbatim — paraphrasing risks invalidating the notice. This is why many growers who are not required to hold a license get one anyway: it converts trust preservation from a per-crisis scramble into a line item on a template.

If you are not licensed: the separate notice​

Unlicensed sellers (typically growers selling their own crop) must send the buyer a separate written notice of intent to preserve trust benefits. The notice must:

• State the intent to preserve trust benefits under PACA
• Contain enough detail for the buyer to identify each transaction (invoice numbers, dates, amounts)
• Be received by the buyer within 30 calendar days after payment became due — or within 30 days of learning a payment instrument was dishonored

There is no official form. A clear letter or email with the transaction details qualifies, but calendar the deadline from the day payment was due, not from the day you start worrying.

How the Trust Gets You Paid​

When the buyer is slow but solvent​

A preserved trust claim is enforced in U.S. District Court. The standard move is a trust enforcement action seeking a temporary restraining order that freezes the buyer's bank accounts until the trust creditor is paid. Because the frozen funds are legally trust assets rather than the buyer's property, courts routinely grant this relief — and many sellers report that the freeze alone produces payment within days. Attorneys who specialize in agricultural and produce law handle these actions regularly; industry trade groups and local bar associations can provide referrals.

When the buyer files bankruptcy​

This is where the trust earns its reputation. Having preserved your rights, you notify the bankruptcy court that you are a priority creditor under 7 U.S.C. 499e(c), marking that status on the proof of claim filed with the clerk. Trust assets — remaining produce inventory, derived products, and cash or receivables from resale — are not part of the bankruptcy estate available to general creditors. You are paid first from those assets, ahead of the bank line, the landlord, and every unsecured supplier of non-produce goods.

The USDA reparation complaint: a parallel remedy​

Separate from the trust, PACA gives you an administrative remedy. If a buyer fails to pay or engages in unfair practices, you can file an informal complaint with the USDA's PACA Division:

• File within 9 months of the date payment was due
• Submit through the ePACA portal, email, or mail to a regional office
• Include documentary evidence (invoices, contracts, bills of lading, broker memoranda)
• Pay the $100 filing fee

If USDA issues a reparation award and the buyer refuses to pay, the Department automatically suspends the buyer's PACA license — and without a license, the firm cannot legally operate in the produce industry. Its officers are simultaneously barred from working for any other licensee without the Secretary of Agriculture's consent. License suspension is an existential threat to a produce business, which is precisely why the remedy works.

Common Mistakes That Destroy Trust Protection​

1. Payment terms longer than 30 days. Net-45 and net-60 terms waive the trust by operation of law. If a buyer demands longer terms, understand exactly what you are giving up.
2. Missing the 30-day notice window. Counting from the wrong start date — or waiting to see if the buyer "comes through" — is how valid claims die quietly.
3. Paraphrased invoice language. Licensees must use the statutory text exactly. Have your attorney review the invoice template once, then lock it.
4. Accepting post-default agreements carelessly. Renegotiating terms after a default can affect trust eligibility. Get advice before signing anything a delinquent buyer puts in front of you.
5. Skipping due diligence on new buyers. USDA will share a prospective customer's PACA complaint and license history if you call the customer service line at 800-495-7222. A two-minute call before the first shipment can save a five-figure loss.
6. Assuming the trust covers processed products. If you also sell canned salsas or dried fruit alongside fresh produce, only the fresh and frozen invoices carry trust protection. Segment them clearly.

Bookkeeping Habits That Protect Your PACA Rights​

PACA protection lives or dies on paperwork, which makes your books part of your legal armor. A few habits pay for themselves:

• Keep produce invoices separate and complete. Every invoice should show the ship date, acceptance date, payment terms (30 days or fewer), and the statutory trust language if you are licensed. Acceptance date matters because the 10-day prompt-payment clock runs from it.
• Track aging by transaction, not just by customer. The 30-day trust notice deadline runs per transaction from its payment-due date. An aging report that shows each invoice's due date lets you spot the notice deadline before it passes.
• File proof of delivery with the invoice. Bills of lading, signed delivery receipts, and broker memoranda are the documentary evidence a reparation complaint requires. Attach them digitally at invoicing time, not when a dispute erupts months later.
• Log every payment promise in writing. When a late buyer asks for more time, confirm the conversation by email the same day. Those records establish the timeline if you end up in court or before USDA.
• Reconcile buyer accounts monthly. A buyer whose balance creeps from current to 30 to 60 days past due is sending a distress signal. Monthly reconciliation turns that signal into an early warning instead of a bankruptcy surprise.

Accurate, transaction-level produce records do double duty: they keep your tax and management reporting clean, and they are the evidence package that makes a trust claim enforceable.

What to Do the Day You Suspect Trouble​

If a buyer misses a payment deadline or you hear rumors of financial distress, move in this order:

1. Confirm your preservation status. Licensed seller with trust language on the invoice? You are preserved. Unlicensed? Send the written 30-day notice immediately if the window is still open.
2. Stop shipping on credit. Cash in advance or no load — every additional shipment increases exposure.
3. Call USDA at 800-495-7222. Check the buyer's complaint history and discuss filing an informal complaint.
4. Consult a produce attorney promptly. Trust enforcement actions move fast, and the temporary restraining order strategy works best before trust assets dissipate.
5. If bankruptcy is filed, file your proof of claim as a PACA trust priority creditor. Do not file as a general unsecured creditor and hope for the best.

Keep Your Produce Receivables Enforceable​

Selling perishables means extending credit against goods that lose value by the hour — the PACA trust exists precisely because ordinary collections cannot keep up. But the statute only protects sellers whose invoices, terms, and deadlines are airtight. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data, so every invoice date, payment term, and aging bucket is version-controlled and auditable when it matters most. Get started for free and see why developers and finance professionals are switching to plain-text accounting.