Criteria 3.2: Criteria 3.2: Discussions to establish the terms of cultivation or collection activities promote dialogue, trust and long-term collaboration
3.2.4 Payment terms to producers are reasonable and place them under no undue pressure. If requested and justified, pre-financing is available at the producer level for at least part of the contract value.
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Payment terms are considered reasonable when:
terms are agreed upon through discussion/negotiations and, ideally, detailed in the supply agreement between both parties
for smallholders, terms do not exceed one month (if more, this should be expressly agreed upon and justified)
payments are recorded, possibly through a receipt given to the producers/collectors or the producers/collectors signature in a register - in the latter case, the register must include at least the producer's/collector's name, the date, the volume purchased, the price paid and the modality of payment (cash upon delivery, bank transfer end of the month, etc.) and be kept updated by the OaS/buyer)
payment is paid directly to the person in charge of the production or there is a system in place to ensure producers/collectors are getting paid as established
If necessary and feasible for the OaS, prefinancing is offered as a support to the producers/collectors that require it. If this prefinancing is necessary, based on interviews and the local context, and not granted, this should be justified. Prefinancing can be monetary and/or non-monetary (for instance, seedlings for new crops).
If credits are offered by the OaS/group of producers/buyer, and interest is considered, this should not be higher than local interest rates. Moreover, credits should not create dependence towards the organisation, such as an obligation to work longer to pay back the amount of granted credit, etc. The debt percentage must be considered in this assessment (compared to the received income).
When sub-suppliers are negotiating and directly involved in pricing with producers, this requirement will also apply at their level.
This indicator is applicable only when the OaS is working with producers and they're involved in the scope of the assessment.
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DOCUMENTATION
sourcing/supply agreement with local producers/collectors with definition of terms of payment
other documented evidence of prefinancing, credits, loans, services, etc.
payment receipts to producers/collectors
documented interest rates
justification of lack of pre-financing for producers/collectors
INTERVIEWS
with OaS:
about their terms of payment (how, when, records, etc.)
about their policy on prefinancing
about other kind of financing or related support
with producers:
about the terms of payment (how, when, records, etc.)
about the level of satisfaction with the terms
about the feasibility to negotiate these terms
about prefinancing or other types of financing (loans, services, in-kind benefits seen as financing, etc.)
Scoring guidance
0 - Payments terms are not negotiated between parties or perceived as too long (complaints exist regarding payment timing). Payment terms are not clearly known and/or may vary from one month to another.
1 - Payments terms are negotiated and known, and there are no complaints on timing of payments, nor regular delay of payments. However, payments are not recorded and/or not paid to the producer/collector directly (e.g. to husbands rather than women producers, unless this is agreed upon and controlled - see guidance), or no prefinancing granted when necessary without justification, or prefinancing or credits have higher interest rates than those locally available, or credits create high dependency of the producer on the OaS (see guidance).
2 - Payment terms are perceived by producers/collectors as good (all the above described in score 1 is compliant), with improvements identified (for instance, better or zero interest rates, credit when possible that does not create dependency, other types of support with clear and transparent agreed terms, etc.).
3 - Payment terms are negotiated and known, and there is no complaint on timing, nor regular delays of payments. Prefinancing is granted on a case-by-case basis or to all producers/collectors whenever needed (all documented) with no interest applied and/or trying to find alternatives to support them.
N/A - The OaS is not working with external producers or they are not part of the scope.
Score 2 to be reached by second year
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Importance
Regular
ApplicabilityCultivation & wild collectionOaSSub-suppliersField operators |