As a new season starts, many of you may be out providing custom swathing and baling services. As you provide these custom services, the majority of those you work with will probably pay you on time with no issues. But what about those who do not pay on time? Some states have laws that may offer protections, but in other states, it may be just developing a simple contract that states what happens if payment is not made, which might better assist you in providing custom services.
In Alabama, Delaware, Illinois, Kansas and Kentucky, automatic statutory liens ensure custom operators get paid. A lien is a security interest given to a creditor on a debtor’s property, lasting until a debt is satisfied. For example, if I swath and bale your alfalfa in Kansas, I automatically hold a lien on the hay. I don’t have to file anything to create it – the lien exists on the crop until you pay me for the work.
In these states with automatic liens, the custom operator holds an interest in the hay until payment is made. The lien requires that any proceeds from the sale of the hay be paid to the custom operator for the services. With hay used on the farm, the custom operator could foreclose on the lien and sell a portion of the hay crop to satisfy the debt. In a few automatic lien states, the hay cannot move from the farm without the owner first notifying the custom operator. It is important for harvesters to understand the lien statute and requirements in the applicable state.
I should point out that you should never attempt self-help remedies, such as taking bales to satisfy what you are owed. Taking bales could result in criminal charges against you for theft and trespass, charges that could be considered felonies in many states, meaning you could face jail time of more than one year or higher fines. You might have a lien in a state that allows them, but it’s important you go through the court process to enforce that lien, not take matters upon yourself.
What about those of you in the majority of states without automatic liens? In states without automatic liens, custom operators should maintain good business records to demonstrate the amount owed to them. Records demonstrating how many acres were swathed, the number of bales baled and receipts or bank statements showing how much clients have paid on previous jobs this season, for example, would all go a long way toward demonstrating what is owed in the event a dispute arises.
With these records, a custom operator could work with an attorney or represent themselves to initiate a breach-of-contract lawsuit to recover the unpaid services. A breach-of-contract suit will take time and money to receive what you are owed. One option in this situation that would allow the dispute to be resolved without going to court is mediation. Many states have USDA ag mediation programs that provide alternative dispute resolution through mediation. Using this service allows both parties to meet with a mediator, a neutral third party who helps them efficiently resolve the issues.
Regardless of whether a custom operator is in an automatic lien state, before each hay season, the operator should develop a simple contract outlining the terms of the services provided and the rates to be charged. Although many operators may have relied on handshake deals, if not being paid for services is a recurring issue, it may be time to consider a simple contract. The document would allow the parties to spell out definitively when payment for services is due and set forth consequences if payment is late. The document could simply be an invoice given to the customer after each cutting and baling, with terms of payment laid out on the invoice.
Sadly, customers not paying their bills is a problem from time to time in many industries. Even attorneys face issues with clients who fail to pay. Do not repossess hay without first going to court to obtain the authority to do so. Remember that a few states have laws creating an automatic lien on the hay that exists until terminated by payment. In states without automatic liens, a harvester needs records to demonstrate the services provided and the agreed-upon rate, and may bring a breach-of-contract suit in court to get paid or may use a mediation program as an alternative to court.
Each season, use a simple contract to define the services provided and the payment terms. Each of these tools will help ensure timely payment.
This article is provided for informational purposes only. Readers should consult their own professional advisers for specific advice tailored to their needs. Information contained in this article may be subject to change without notice.
