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  The ILCC Legal Division

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TPP-5:
Retailer Payments to Distributors, Importing Distributors, and
Foreign Importers

I. Purpose

It is the purpose of this Policy to make the industry aware of the permissible methods of payment for alcoholic liquor between retailers and manufacturers, distributors and importing distributors.

II. Policy

It is the policy of the State of Illinois to allow manufacturers, distributors
and importing distributors to extend credit for no more than 30 days to
retailers for the purchase of wine and spirits; to allow for various payment methods which are considered cash equivalents; and to allow for finance and banking charges which are standard in the course of business if such charges are properly disclosed to retailers.

III. Background, Statute, Regulation

235 ILCS 5/6-5 provides in relevant part that a retail liquor licensee shall not accept or receive credit (other than merchandising credit in the ordinary course of business for a period not to exceed 30 days) directly or indirectly from any manufacturer, importing distributor or distributor of alcoholic liquor, and any manufacturer, distributor or importing distributor may not loan or extend credit (except such merchandising credit) directly or indirectly to any retail liquor licensee. Retail liquor licensees delinquent beyond the 30 day period specified in the Section shall not solicit, accept or receive credit, purchase or acquire alcoholic liquors, directly or indirectly from any other licensee, and no manufacturer, distributor or importing distributor shall knowingly grant or extend credit, sell, furnish or supply alcoholic liquors to any such delinquent retail liquor licensee. The Section also provides that the purchase price of all beer sold to a retail liquor licensee shall be paid by the retail liquor licensee in “cash” on or before delivery of the beer.

The 30 day merchandising credit period allowed by Section 5/6-5 commences the day immediately following the date of invoice and includes all successive days including Sundays and holidays to and including the 30th successive day [Regulation 100.90(b)]. Note that the question of whether the invoice date or the actual date of delivery of the product is not addressed in the statute or rule. It is the opinion of the Commission that the date for computation of the credit period will be based upon the date of the invoice if that date and delivery are the same, and on the delivery date of the invoice is dated before the date of delivery.

Section 5/6-5 further provides that every manufacturer, importing distributor and distributor shall submit to this Commission, by Thursday of each week, a verified written list of the names and addresses of each retail liquor licensee purchasing spirits or wine from such entity which, on the first business day of that calendar week, was delinquent beyond the permissible merchandising credit period of 30 days. A verified written statement that no such retail liquor licensee was then delinquent beyond such permissible merchandising credit period should also be filed. Such entities shall also submit to the State Commission a verified written list of the names and respective addresses of each previously reported delinquent retail liquor licensee which has cured such delinquency by payment, not later than the second full business day following the day such delinquency was cured.

Such written reports shall be posted by the Commission in each of its offices, available for public inspection, not later than the day following receipt, and such reports constitute notice to every manufacturer, importing distributor and distributor of the information contained therein. Actual notice to such entities of the information contained in the posted reports, shall also constitute notice of the information.

In addition to other methods allowed by law, payment by check during the period for which merchandising credit may be extended shall be considered payment. All checks received in payment for alcoholic liquor shall be promptly deposited for collection [Regulation 100.90(c)]. A post-dated check or a check dishonored on presentation for payment is not deemed to be payment.

Regulation 100.90 further states in relevant part that: (e) where a bona fide dispute exists between the retailer and the wholesaler as to the fact of payment of a given sale, the sale itself shall not be sufficient grounds for considering the retailer delinquent; (f) where a retailer pays a salesman, or other agent of the wholesaler, such payment is effective upon receipt of the money or check by the salesman or agent; (g) even though a retailer is delinquent and not able to purchase any alcoholic liquors for cash, or otherwise, the retailer may purchase beer for cash; (h) payment from a delinquent retailer after the first business day of the week and before a verified written statement of delinquency has been submitted entitles the manufacturer, importing distributor or distributor submitting to delete that retailer’s name from the list; (i) determinations of delinquency shall be made by the Chairman, Executive Director or any individual authorized by them on the basis of the verified report of delinquency and any affidavits or counter-affidavits submitted, and any licensee objecting to the determination may make a written request for a hearing at the next regularly scheduled meeting of the Commission; and (j) a copy of any verified written list of delinquencies shall be simultaneously forwarded to the licensees listed therein by the manufacturer, importing distributor or distributor submitting such list.

Regulation 100.240 deals with transactions involving the use of checks and their equivalent and specifically prohibits the selling or furnishing of alcoholic liquor at retail to any person on credit or on a passbook, or order on a store, or in exchange for any goods, wares or merchandise, or in payment for any services rendered. But the use of money orders, traveler’s checks, drafts or checks or the equivalent of any of them not be considered the extension of credit so long as same are not postdated, and promptly deposited and collected in due course. “funds, provided the transfer is initiated by an irrevocable payment order on or before delivery of the alcoholic liquor.

IV. Procedures

A. Extension Of Credit
Distributors may extend credit to retailers for the purchase of alcoholic liquors for a period of time not to exceed 30 days, except that payment for beer purchases by the retailer be made in cash or its equivalent, on or before the delivery of the beer.

B. Methods Of Payment
A retailer has not been discharged from its obligation to the distributor until the distributor has been paid in cash or its equivalent. The following are considered as cash equivalents:

  1. Checks, including money orders, traveler’s checks, drafts, certified checks, cashier’s checks or teller’s checks so long as they are not post-dated, and if honored by the retailer’s bank in the ordinary course of business. The distributor’s obligation is to promptly deposit checks for collection.
  2. Electronic fund transfers provided the transfer of funds is initiated by an irrevocable payment order on or before delivery of the alcoholic liquor. In computing the 30-day period, if the funds are withdrawn from the retailer’s account on the 30th day, the fact that the funds are not deposited into the distributor’s account until the 31st day is immaterial.
  3. Credit cards may be used to purchase wine and spirit products. Any widely recognized credit card, including but not limited to Visa, MasterCard, American Express, Discovery and Diners Club, may be utilized. [Sec. 5/6-19, Sales on Credit – Exceptions as to Clubs and Motels, which controlled credit relationships between retailers and consumers was repealed by P.A. 90-432, eff. 1/1/98. The final sentence of Sec. 5/6-19 stated, “(T)hat nothing herein shall be construed to prevent payment by credit card or other credit device for the purchase of liquor in the original package or container for consumption off the premises.]

C. Calculation of Payment Period
The first day of calculation begins with the day after the date of delivery
(invoice date) and includes each successive date subsequent, including Sundays and holidays, to the 30 day limit. In the event that the delivery of the product is subsequent to the invoice date, the actual delivery date will be the first day for the purpose of calculation. The date of delinquency shall be the first day after the 30 day period, or the 31st day. Receipt of any cash equivalent by a salesman or other agent of the distributor, is considered as being effective immediately upon receipt. For purchases of wine and spirits, a post-dated check which is cleared prior to the end of the 30 day credit period, including any properly disclosed finance charges, is considered to be a valid payment. Also, an “NSF,” void, or stop payment check, for purchases of wine and spirits, which is properly replaced with cash or cash equivalent before the end of the 30 day period, including any properly disclosed finance and bank charges, is considered to be valid payment.

D. Additional Finance and Bank Charges
Finance charges on credit issued and bank charges for NSF, void, or stop-payment checks are considered to be standard business practices. Distributors may include finance charges, other usual and customary charges in the industry and bank charges provided:

  1. A statement is printed on the original invoice which is delivered to the retailer at the time the merchandise is received indicating such finance and bank charges shall be assessed, with a statement specifying the terms and amounts of charges imposed.
  2. Finance and bank charges must be within prescribed legal limits. Any such finance or bank charges which have been properly disclosed to the retailer are considered to be part of the cost of the merchandise as of the invoice date, and therefore the entire amount, including any finance or bank charges, must be paid before the retailer can be considered to be non-delinquent.
  3. If a distributor engages in the practice of adding a finance or bank charge, such charges must be added to all accounts, and may not be waived for any customer.
  4. All provisions of Section 5/6-5 remain effective whether or not the
    distributor chooses to impose finance or bank charges.

A retailer making payments via electronic transfer of funds may not charge the distributor for the costs of such transfer, nor may a distributor charge the retailer for the distributor’s bank charges for electronic transfer. Such transfers are considered to be for the benefit of each, and therefore as other acceptable payment methods are available, each party need not bear the other party’s burden of such transfers.

E. Delinquency List
Section 5/6-5 of the Illinois Liquor Control Act and Regulation 100.90 provide for the existence and maintenance of the delinquency list. The general parameters of the list are stated above, and the Statute and Regulation should be consulted for additional information.

Although being listed as delinquent is not a violation of the Liquor Control Act, purchasing while delinquent is. For this reason, particular attention will be paid to those licensees who have been delinquent for an extended period of time, and the Commission will conduct investigations into licensees delinquent beyond the 30 days allowable on a case-by-case basis.

F. Bona Fide Disputes
Any party to the transaction may request a dispute be determined to be “bona fide.” This Commission shall, on a case-by-case basis, be the determiner of whether the circumstances surrounding a commercial transaction require the retailer be placed on the delinquent list [100.90(i)]. This Commission, upon submission of the matter to it, in sufficient time to conduct its investigation before the expiration of the 30-day period, shall look at the facts surrounding the matter, including the retail liquor licensee’s oral or written statements, oral or written statements of the distributor, documentation, etc., questioning the payments, or lack thereof. The Commission cautions all parties that an oral submission of a dispute may be a wholly insufficient basis for the Commission to make such a requested determination. Documentation is the suggested method of submission, which may include invoices, affidavits, or other written or tangible items. If the Commission initially determines that a bona fide dispute does or does not exist, the licensee which continues to maintain the opposite position shall be entitled to a formal hearing, upon written request.

G. “Common Ownership”
Rule 100.90 (a) states that licenses which are owned in “common ownership” will all be declared delinquent if one such license is declared delinquent. Neither the statute nor rule defines the concept of “common ownership.”

The Commission has reviewed the following Illinois statutes which deal with joint or common forms of ownership:

35 ILCS 5/ Illinois Income Tax Act Illinois Compiled Statutes, Revenue, Illinois Income Tax Act ARTICLE 15. DEFINITIONS AND RULES OF INTERPRETATION. (35 ILCS 5/1501)
Common ownership in the case of corporations is the direct or indirect control or ownership of more than 50% of the outstanding voting stock of the persons carrying on unitary business activity.

30 ILCS 168/ Tobacco Product Manufacturers' Escrow Act Illinois Compiled Statutes, Finance, Tobacco Product Manufacturers' Escrow Act
"Affiliate" means a person who directly or indirectly owns or controls, is owned or controlled by, or is under common ownership or control with, another person. Solely for purposes of this definition, the terms "owns", "is owned", and "ownership" mean ownership of an equity interest, or the equivalent thereof, of 10% or more, and the term "person" means an individual, partnership, committee, association, corporation, or any other organization or group of persons.

625 ILCS 5/ Illinois Vehicle Code Illinois Compiled Statutes, Vehicles, Illinois Vehicle Code ARTICLE I. DEALERS (625 ILCS 5/5-101) Sec. 5-101
(b) An application for a motor vehicle financing affiliate's license must be filed with the Secretary of State, duly verified by oath, on a form prescribed by the Secretary of State and shall contain all of the following: (3) A list of the business organization's officers, directors, members, and shareholders having a 10% or greater ownership interest in the business, providing the residential address for each person listed.

765 ILCS 1005/ Joint Tenancy Act Illinois Compiled Statutes, Property, Joint Tenancy Act
Sec. 2.(a) When a deposit in any bank or trust company transacting business in this State has been made or shall hereafter be made in the names of 2 or more persons payable to them when the account is opened or thereafter, the deposit or any part thereof or any interest or dividend thereon may be paid to any one of those persons whether the other or others be living or not, and when an agreement permitting such payment is signed by all those persons at the time the account is opened or thereafter the receipt or acquittance of the person so paid shall be valid and sufficient discharge from all parties to the bank for any payments so made. (b) When shares of stock, bonds or other evidences of indebtedness or of interest are or have been issued or registered by any corporation, association or other entity in the names of 2 or more persons as joint tenants with the right of survivorship, the corporation, association or other entity and their respective transfer agents may, upon the death of any one of the registered owners, transfer those shares of stock, bonds, or other evidences of indebtedness or of interest to or upon the order of the survivor or survivors of the registered owners, without inquiry into the existence, validity or effect of any will or other instrument in writing or the right of the survivor or survivors to receive the property, and without liability to any other person who might claim an interest in or a right to receive all or a portion of the property so transferred.

(765 ILCS 1005/3) Sec. 3.
Except as otherwise provided in this Act, all joint obligations and covenants shall be taken and held to be joint and several obligations and covenants. (Source: Laws 1919, p. 633.) (765 ILCS 1005/4) Sec. 4. If any person shall assume and exercise exclusive ownership over, or take away, destroy, lessen in value, or otherwise injure or abuse any property held in joint tenancy or tenancy in common , the party aggrieved shall have his civil action for the injury in the same manner as he would have if such joint tenancy or tenancy in common did not exist. (Source: Laws 1935, p. 936.)

The Commission, having considered the foregoing statutory authority, and the ownership threshold established by the Liquor Control Act, concludes that for the purposes of determining whether licenses will be declared delinquent under Sec. 5/6-5 and Rule 100.90, that “common ownership” shall be any ownership interest of “more than 5%” of the total ownership interests in such licenses.

H. Bankruptcy of Retailer
In the event any bankruptcy proceeding is instituted by or against a retail liquor licensee, the “automatic stay” provision of federal bankruptcy law prohibits a change in the financial circumstance of that licensee. Simply stated, this means that the retailer shall not be reported “delinquent” under Sec. 5/6-5 of the Act; if the retailer has already been reported delinquent, that delinquency shall not be effective. The retailer shall not be required to pay any outstanding bill for alcoholic liquors, and no attempts to collect such a debt are valid. (See In Re: William Tell, Inc., Bankrupt. William Tell Ii, Inc., Appellee, v. State of Illinois Liquor Control Commission, Appellant, United States District Court For The Northern District of Illinois, Eastern Division, 38 B.R. 327; 1983 U.S. Dist. LEXIS 16665; 11 Collier Bankr. Cas. 2d (MB) 235, May 26, 1983)

In order for the retailer to continue to purchase alcoholic liquors, the following steps are necessary:

  1. Filing of the Bankruptcy petition
  2. Filing of a Motion to Stay the application of Sec. 5/6-5
  3. Entry of an Order by the Bankruptcy Court directing:
    1. That the application of Sec. 5/6-5 against the retailer is stayed.
    2. That the retailer shall be allowed to purchase alcoholic liquors “for cash.”
  4. Service of Motion and Order upon the Commission and the Wine and Spirits Distributors of Illinois.

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