Custom harvesters, like most business owners providing goods or services, have dealt with or will deal with a customer who does not pay for the goods or services provided.

Disputes, conflicts, mistrust, and lawsuits most often result from inadequate communication and misunderstandings between custom harvesters and their customers. Too often, a business and a customer enter into an oral contract without clearly defining all of the necessary terms. They intend to rely on their prior good relationship rather than clearly defining the duties, obligations, price, and payment terms. When a problem occurs, each party selectively remembers those parts of the oral agreement that benefit their position.

The easiest debt to eventually collect is one in which the parties are not in dispute with regard to the amount owed, also called an undisputed debt. Even if all of the issues cannot be anticipated, a contract can make the debt as undisputed as possible. A written harvesting contract will clearly document all the essential terms of the business relationship. It should also include additional terms specific to the harvester’s policies and practices. Consider the following:

Parties. The contract must clearly and accurately name the parties. When contracting with a sole proprietor, it is essential that the customer executes the contract. With regard to a general partnership, each partner is jointly and severally liable for the debts and obligations of the partnership. Therefore, although it is best to have all partners sign the contract, the execution by any partner should be adequate.

When contracting with a corporation, limited liability company (LLC), or a limited liability partnership (LLP), any claim for services is limited to a claim against the assets of the entity. These types of entities limit any personal liability of the owners, even though an owner signs the contract on behalf of the entity. It is especially important to verify the financial stability of the entity to ensure the likelihood of payment. The harvester will be considered a general creditor of the entity whose claim is subordinate to the claims of secured creditors. In most cases, lending institutions have substantial liens against the farm’s assets. The contract could include a provision under which the signing owners agree to personally guarantee the obligation of the entity.

Term. Define the term of the contract. When equipment is purchased in order to specifically meet contract requirements, it may be desirable to enter into a long-term contract to ensure that adequate acreage is contracted to fully utilize the equipment.

Subject matter. The contract should clearly define the harvester’s required services, price mechanism, and any other necessary information regarding the services.

Payment. The contract should provide the schedule for payment.

Interest. Provide the interest rate that will be charged in the event of default in payment. Unless the interest rate is in writing — and in proper form — and signed by both parties, interest can only be charged at the legal rate of 5%.

Securing payment. The contract may provide protections such as a required letter of credit from a bank or a security interest in certain assets of the customer. The contract should also make the farmer aware of any state thresherman’s lien rights that may exist.

Events beyond a parties’ control. Make clear that you can only make a reasonable effort to perform services at suitable times. Communicate that you are not responsible for any delay or failure to perform due to conditions beyond your control, such as adverse weather or soil conditions, flood, windstorm, acts or defaults of third parties, accidents, mechanical failures, equipment breakdowns, or unavailability of repairs or parts. Also make clear that you are not responsible for delays due to conflicts in scheduling.

Mud and field conditions. In the contract, state that the farmer will clean any roadways and that the fields will be in suitable condition.

Safety and hold harmless. Ensure that you will not assume responsibility if the customer or their employees ride in or otherwise operate any machinery or equipment that you own. In general, the harvester should not allow any guests — especially children — to be involved in the harvesting activities. The harvester will want to be indemnified by the farmer against any accidents.

Be your customer’s bank

If a customer owes you money, act as their creditor, much like a bank. Consider the customer’s legal composition (sole proprietor, partnership, LLC, LLP, or corporation), the customer’s assets and possible collectibility, and the existence of or lack of security for the debt.

Maintain a complete file of information about the customer. You must be able to prove the unpaid debt and contest any dispute or counterclaim raised. The paper trail created by the harvester can be the difference between a successful and an unsuccessful collection. The customer’s file should include originals or copies of all documents and business records, including but not limited to:

• A statement regarding the customer’s legal structure, the names and addresses of each owner, the owner’s marital status, and the name of the customer’s lender and other secured parties.

• Any credit application, credit references or reports, other financial information regarding the customer, and the name of the customer’s lender.

• The contract, personal guarantees, and other correspondence, as well as other written exchanges between the business owner and the customer, contemporaneous written business records of telephone conferences or other oral exchanges, and all business records related to the services, including invoices, account statements, and related records.

• Information as to the customer’s possible counterclaims against the business owner. It is especially important to have records as to why work may have been delayed or services performed differently than anticipated.

Promise to pay

Consider transforming the open account debt for goods or services into an undisputed promise to pay. The mechanisms include:

• A promissory note executed between the customer and harvester for the amount owed, which may provide for interest just upon default, for the term of the loan, or both.

• A payment agreement executed between the customer and harvester, which sets forth the terms and conditions under which the past due goods or services are to be paid.

• Letters from the harvester to the customer asking for them to dispute the amount owed within a certain time frame.

• Postdated checks from the customer, which can also evidence an admission by the customer of an amount owed.

Obtaining security for the debt may make the difference between eventual payment of the debt and nonpayment. Further, in the event of a bankruptcy, having security for the debt may enhance your position and may prevent the customer from discharging your debt. Forms of security include:

• A mortgage, which is a lien on the customer’s real estate.

• A security agreement, which is a lien on their personal property.

• A third-party guarantee, in which the third party could be the principal shareholder, member, or partner, or a deep-pocketed relative.

Dealing with nonpaying customers is often the least favorite part of any custom forage harvester’s job, but having clear and solid documentation will make doing so a bit more bearable.

This article appeared in the July 2025 issue of Hay & Forage Grower on page 20-21.

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