As new cannabis investors and entrepreneurs hasten to enter the Green Rush, many, if not all, feel overwhelmed. A solid vision, business plan and novel product offerings are no longer enough to break through in this competitive marketplace.
Business owners and operators spend countless hours on permits, compliance, financing, taxes, licensure, hiring staff and employee benefits, yet all that valuable time, energy and money is meaningless if reliable accounts receivable (A/R) methods are not in place. For today’s cannabis business owners, the Popeye cartoon character Wimpy’s catch-phrase, “I will gladly pay you Tuesday for a hamburger today,” doesn’t cut it in today’s environment.
Accounts receivables and collections will always be a crucial issue for success and survival in business. Companies that grant credit terms to cannabis businesses without proper credit applications, invoice policies or A/R procedures will see past due accounts increase as a natural progression of revenue growth. Positive company growth is good; growth in past due receivables is not.
We’ve all encountered the modern Wimpy, the debtor with excuses: “I forgot to pay” or “We’re going out of business” or “We have no money.” Of course, there’s always the Wimpy who won’t answer the phone or reply to texts and emails. These type of debtors — the ones with outstanding claims —cause headaches for A/R managers and cash-flow hurdles for those who issue credit terms. When borrowers default, your company is negatively impacted.
Debtor risk can easily be managed and mitigated. Before engaging with a borrower — especially an unknown entity — companies should:
– Ensure proper credit checks;
– Create valid and enforceable credit agreements;
– Establish and implement efficient, in-house A/R invoice procedures and strategies to prevent future collection challenges;
– Release customer goods only after a credit agreement is legally signed (personal guarantees are recommended to protect businesses if the corporate entity files for bankruptcy);
– Include a late-payment interest clause somewhere on the contract for each invoice; and
– Always be upfront and honest about client expectations. For example, if they default on their credit, they are aware of compound interest (compound interest is great “incentive” for punctual payment and provides leverage for the creditor).
Creditors owed money from uncooperative debtors are forced into undesirable positions. They can expect to spend countless hours and unanticipated salary expenses for in-house payment collection or to hire a by-the-hour corporate attorney. These unanticipated collection expenses may cost more than the actual amount of debt owed. To collect debt, creditors should consider a collection agency whose fees are contingent on successful collections.
After a reasonable number of attempts to collect payments, a reputable collection agency may be the best time- and money-saving option. A collection agency can and should be expected to contact the debtor; reach a debtor settlement and arrange payment, before litigation is necessary; skip trace and asset search to ensure the debtor is solvent; provide regular updates on the status and standing of the account.
Credit issuance can be a daunting and risky task, but it doesn’t have to be. If you have a cannabis business, you might want to consider working with a collection agency that specializes in the industry and can advise on proper standards and procedures, allowing you to focus on other elements necessary for continued growth and success. To be successful, you can’t afford to believe somebody who says, “I will gladly pay you Tuesday, for some cannabis today.”
Ross Gelfand is an experienced attorney and the CEO of Cannabiz Collects (www.cannabizcollects.com), a national collection agency that specializes in the cannabis industry.
[contextly_auto_sidebar]