Show and Pay Me the Cannabis Money A belated happy 4/20. Early data indicates it was quite a lucrative day. However, don’t count your chickens before they are hatched. Many companies won’t end up getting paid on time, if at all. Late paying is clearly bad for the invoicing firm from a cash flow perspective. And many companies end up shuttering their doors because of bad debts. Bad payment practices have other negatives. They are fostering a sector-wide phenomenon where weed companies automatically extend their AP even if they have the money. This behavior raises the cost and hassle for everyone. In a growing number of cases, unethical firms will order lots of merchandise prior to peak selling days (like 4/20), liquidate their stock and then close up shop. Slow or non payment is a widespread issue. California’s DCC asserts that 40% of state licenses will fail to pay invoices within the allotted time. In fact, every market features unnecessarily long payment cycles. Managing AR must be a strategic priority, and can no longer be ignored or treated as a sleepy back-office function. "Collecting in cannabis today is all about timing and becoming a priority. Unfortunately, the nice guy/girl today in cannabis finishes last.” says Brett Gelfand, Managing Partner of CannaBIZ Collects Our sector’s penchant for kumbaya thinking is a soothing balm - until you run out of cash. Then its panicked calls to lenders, clumsy headcount reductions and aggressive customer appeals. The latter could have serious ramifications including pissing off customers, demotivating your staff and jeopardizing brand equity. Some fixes 1. Create internal accountability - Make sure you are regularly tracking AR in easy-to-understand reports; - Educate your staff on the true impact of late and non-payers; - Establish cross departmental ownership of AR including accounting, sales and customer service. 2. Define/refine credit controls - Establish and enforce clear rules around customer eligibility, credit size and terms; - Tighten/establish new credit policies & practices - and stick to them. For example, join the Cannabiz Credit Association to monitor credit risk and help promote on-time payment behavior. Use credit bureaus. And, check references of new clients. - Make collections a separate function. Salespeople are neither effective nor objective bill collectors. 3. Enlist collections professionals early on All collections firms are not created equally. I like CBC (not a client), who claim to be the largest in the cannabis space. Size and specialization matters. CBC brings cannabis-tailored solutions, a deep roster of industry contacts (for early warning of debtor problems) and extensive market data to help their clients with collections and cash management planning.

Posted by Mitchell Osak at 2024-04-25 14:51:34 UTC