October 25, 2016

When considering a consignment agreement for your produce, what constitutes a detailed account of sale to verify the net return?

By: Tom Oliveri

In my October 12th Blog, “What formula for an adjustment should you consider”, I detailed how an account of sale from the receiver can be the best available evidence of the value of your produce at destination. This Blog is dedicated to what criteria makes-up a detailed account of sale and I will share a “mocked-up” accounting that you should always expect when you are being forwarded net proceeds.

When you contemplate moving a load of produce under a consignment agreement, or a buyer rejects a load of produce at destination for failing to meet “Good Arrival”, you are entering into an agency relationship with a commission merchant selling your produce for the benefit of your company on a consignment basis.  As I have discussed in a previous blog “Price after sale vs. consignment”, the only time a detailed accounting is required to be submitted by the consignee (the company selling your product) is on a consignment transaction. 

As stated, a consignment is an agency relationship between the shipper and the receiver. 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………. “what information is required on the accounting and what is considered a detailed account sale?”  There are five main components of a detailed account of sales:

  1. Date product physically received at receivers facility
  2. Lot numbers must be assigned to the product received
  3. The date and the amount sold on a given date along with the gross selling prices
  4. For any discarded product over 5%, a dump slip or donation receipt must be provided, or an inspection showing the product has no commercial value on the dump date
  5. 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 you are provided from your 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 connected on how the daily sales are transpiring 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 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 949 885-2269 or email me at TommyO.wga.com.