Withholding payment of an undisputed amount: Tips for Better Business Practices

The Fruit and Vegetable Dispute Resolution Corporation (DRC) has noticed that, from time to time, a buyer may choose to withhold payment of the undisputed amount when a disagreement on a transaction occurs.

It is not uncommon to see this practice in our industry especially when the parties disagree on a return after the product has failed to meet contract terms and the load has been handled to minimize the loss. It also happens when there is more than one transaction between the parties, one of the invoices is in a dispute, and the other invoices are not paid until the disputed invoiced is resolved.

Here’s what the DRC recommends to buyers and sellers in this situation:

As per the DRC Trading Standards, all members must fulfill their financial obligations by paying their invoices within the agreed payment terms or follow DRC Trading Standards when no payment terms have been agreed. Undisputed invoices cannot be withheld unless the buyer and seller agree otherwise.

In regards to payment of undisputed amounts, the DRC Trading Standards Section 19 subsection 10 states:

“(11) … If there is a dispute concerning a transaction, the foregoing time periods [paragraphs (1) through (10)] for prompt payment apply only to payment of the undisputed amount.”

Paying the undisputed amount is a good business practice and can help you have better customer relationships. Here are some of the benefits:

  1. The disputed amount may become significantly less.
  2. The smaller the amount of a dispute, the easier it is to negotiate a settlement.
  3. Helps avoid situations where the supplier feels like they are being held for ransom. When buyers withhold money that do not belong to them, suppliers may become more reluctant to negotiate a settlement.
  4. Paying the undisputed amount can alleviate financial strain on the seller.
  5. The buyer’s reputation avoids being tarnished in the market.
  6. In the event a dispute reaches an arbitration process, and the arbitrator awards interest, the losing party will pay less interest.

If you want to learn more about payment terms and practices, feel free to contact DRC’s Trading Assistance staff through our Help Desk.

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