Does DRC allow its members to offset payment from undisputed invoices?

Offsetting payment from undisputed or unrelated invoices is common in our industry. DRC’s Trading Assistance Staff continues to receive consultations or cases connected to this practice. The question remains: does DRC allow offsetting payment from undisputed invoices?

The most common examples of offsets come from receivers receiving a load in deteriorated condition, where losses after claiming damages exceed the original invoiced price. This leads receivers to deduct those losses from other unrelated transactions. Another example occurs with transportation accounts, where shippers or receivers withhold payment to transportation companies on freight bills totalling the load’s value because of a carrier claim tied to only one transaction.

Technically, unless shippers, receivers and transportation companies have an agreement to offset accounts, the receiver is not automatically entitled to offset their losses on unrelated produce or freight invoices.

While DRC Trading Standards and Transportation Standards are silent regarding offsetting payments from undisputed or unrelated accounts, these standards are both clear about payment practices if payment terms have not been agreed to:

Trading Standards

“Definitions – Section 19.10.5

(5). Payment for produce purchased by a buyer, within 10 days after the day on which the produce is accepted:”

Transportation Standards

“Claims – Section 10.3 and 10.4

3. Carrier not at Fault

If it is clear that responsibility for the loss damage is not related to the contract of carriage, the carriage charges should be paid in full. The carrier should not be compelled to await payment of its freight charges pending the outcome of any dispute between the buyer and seller. The carrier has fulfilled its responsibility and deserves to be paid the full amount of its charges.

4. Carrier at Fault

Where it is evident that the fault is with the carrier, the most practical and fair procedure is to seek an immediate understanding concerning payment of a claim in the proven amount.  When the measure of damages may not be determined precisely until the merchandise is sold, arrangements should be made between carrier and receiver concerning the time and method of selling the produce and when payment of any balance of freight charges is to be made to the carrier.  Should the parties fail to reach an agreement the dispute can be submitted to the Corporation for resolution under its rules.”

If a produce or freight transaction does not have a contract that specifically allows offsets, it is treated as a separate agreement. Without a contract, each transaction is treated individually, especially in the event of a dispute.

Provided that the receiver and the transportation company are DRC members, if losses are beyond the shipper’s invoice price plus freight, and the receiver or the transportation company refuse to pay, a claim can be filed with DRC to try to collect those losses.

Have questions about offsetting payments or DRC contract terms? Contact the DRC’s Trading Assistance Staff for expert guidance or review your current agreements to ensure compliance with DRC rules.