Like the rest of our economy, farmers are looking to new and different markets to sell their goods. As with all new relationships, it’s always wise to proceed with caution. When you’re dealing with someone you don’t know well yet, there’s a real danger they won’t end up paying you. Of course, in hard economic times, the danger of non-payment is also much higher even with people you have been dealing with for some time.
There are some easy steps you can take to better protect yourself against a customer not being willing or able to pay. The most effective thing you can do is register a ‘security interest’ in the unpaid goods on the Personal Properties Securities Register (PPSR) until you get paid.
So what are the steps to do this?
Aren’t my terms and conditions of sale enough?
Most primary producers supply goods on a post-paid account under a contract or invoice that may contain a retention of title clause (indicating that ownership of your goods remains with you until they are paid for in full). If you don’t do business on this basis, you should, and we can help you update your terms and conditions of trade to reflect this.
While a ‘retention of title clause’ is a critical first step, it will no longer protect you on its own. If the purchaser becomes insolvent, your retention of title clause won’t give you security against the liquidator or other creditors unless the retention of title right is registered on the PPSR. Furthermore, you need to ensure that you register your interest on or before supplying the goods so you get priority ahead of other people who may have existing or new security interests against your buyer.
Make sure you back up your terms of trade by registering your interest on the PPSR.
How does a PPSR registration help me?
There are different classes of PPSR registrations for your retention of title right, but essentially a PPSR registration helps you:
- Get your goods back if they have not been on-sold or used yet;
- Claim your interest in any ‘proceeds’ from the sale of your goods by your customer; and
- Ensure your security interest continues when you’ve sold goods and are still owed money for them, even after they’ve been mixed with others’ goods (for example, grain in silos), or made into something (for example processed food or clothing).
If you don’t register your interest in the goods then you will line up like all the other creditors of your customer, and end up with cents in the dollar.
How do I jump the queue?
Secured creditors are paid in the ‘order of registration’ on the PPSR – an earlier dated registration beats a later one over the same collateral. However, you may wish to jump the queue. Remember, we said there are different classes of registration?
If you are selling on ‘retention of title’ terms you can register a purchase money security interest (or PMSI, pronounced ‘pimsy’, like the drink!). If properly registered, a PMSI gives priority over earlier registered security interests over the same collateral. In order to gain this priority, you must register and claim your PMSI on the PPSR prior to delivery of the goods. If you don’t claim and register the PMSI on the PPSR in this way, you will lose out to an earlier registered security holder like a bank holding a ‘general charge’ against your customer.
How can we help?
We can ensure your trading terms ‘retain your title’ to your goods until you get paid, and we can register your interests on the PPSR when you deal with customers to protect these rights. We will make sure you get the most appropriate registration and if you ever need to enforce it, we can help you with that too (see this article).
The information contained in this post is current at the date of editing – 26 July 2023.