A financial risk every business faces when selling on credit is that the client won’t pay an invoice when comes due. When this happens, it hurts your cash flow and leads to financial issues. If your business used financing to supply their P.O. you can end up footing the interest bill. This means you’re out both the money from the client order as well as the interest accrued to make the sale.
One way to help control this financial risk is to have the owner of the company sign a Personal Guaranty making them personally liable for the debt.
Past due invoices happen for all kinds of reasons. At CannaBIZ Collects, we’ve pretty much heard them all. What we’ve found over the course of many years in the collections business is that past dues can sometimes be prevented altogether with pro-active, in-house measures.
The work you do before you send the first invoice can prevent accounts from ever becoming delinquent in the first place. Frequent communication, follow up when an order has been received, and a confirmation after you send an invoice can circumvent issues down the road.
Custom Credit Applications by CannaBIZ Collects! Allow us to create a customized application your business can use next time it thinks about extending credit!
The cannabis industry is growing. However, with adult use being first legalized in Colorado 4 years ago, the industry is still in its infancy. Like all other businesses, reputation is extremely important and canna-businesses must create brand awareness, create valuable relationships, and scale operations to one day become a leader in their space.
Entrepreneurs around the globe need to settle on the hardest choices, and do so consistently to properly influence their organizations. It can be hard to settle on the best choice for your organization, but then again numerous operators battle with settling on the correct decision. This article centers around providing the costly monetary errors that entrepreneurs make every day.
Time is a powerful thing. In some circumstances in cannabis time can be your friend. Taking an extra day to review a contract, great idea. Giving your plants an extra week to flower, so they can reach optimum potency and flavor profiles, is a good idea. Leaving your freshly blasted concentrate slab in vacuum ovens for an extra 12 hours so it purges properly, is a great idea. Taking the extra time, to hand manicure and trim your bud, is a great idea. A many number of things in cannabis benefit from extra time. However cannabis debt collection is most certainly an exception to that rule.
As with any comparison of two things, there are always the pros and cons. Below is an outlay of the comparison of using a collection agency versus taking your debtor to small claims court. We have tried to remain as objective as possible. There are pros and cons to each side of the equation and many of the pros and cons reflect the cons and pros of the opposite side.
The real question to be asked: Is your time worth more than what you would pay in a collection agency’s contingency fees?
The “honeymoon” face of your client relationship was extremely positive and exciting. Making the sale, sending the invoice, delivering the product, all seemed to be smooth sailing. However, your customer isn’t writing checks when payments are due, how are you supposed to know if it is time to send this client to collections? There is a point where you need to recognize your cash flow exceeds the importance of an irresponsible customer.
This blog post isn’t meant to scare you. But it is meant to be a reality check.
Think of all the things that can threaten your business. There are so many, but here is a list of things that should concern you as a business operator.
A change in the marketplace
Like an oversupply of competing products
In Oregon, prices of outdoor plummeted to $50/pound of flower after the last harvest season
A change in the legal landscape
New regulations have limited your efficiency
A pesticide or procedure has been outlawed in your market
A disgruntled employee becomes a saboteur
Your accounts receivable grows to an unmanageable amount effecting cash flow
Extending credit is part of a healthy business. Few things are more important for those businesses extending credit then having a strong credit agreement/application.
Credit agreements need four crucially important clauses. These four clauses will determine if a debt is collectible or not collectible should your client default on payment. Without these clauses, it can be virtually impossible to collect on your business debt and cost many thousands extra.
If you and your cannabis business is thinking about extending credit but hasn't yet set up standards and procedures nor had its contracts reviewed by a professional attorney, then you need to call us!
Why reinvent the wheel through trial and error, causing you to have clients that become debtors. CannaBIZ Collects will set up your entire Accounts Receivable process allowing your business to extend credit with confidence, while at the same time mitigate the risk from doing so.
Some time around July of last year, a large Hemp/CBD manufacturer approached us asking for help and advice. They had several large accounts on their books that were way beyond 90 days past due. When they called, they had five accounts past due (with another three aging past due in the coming months). Three of these accounts were each over $75,000, with the rest totaling another ~$50,000 (to save you time on the math in your head, there was a total of ~$275,000 outstanding past due).
In business it’s common to experience a situation where you are “owed money”. Throughout the long road of starting a business, entrepreneurs work relentlessly to ensure quality products/services, seek and train highly motivated sales representatives, provide excellent customer service, and even extend credit terms. However, as the business begins to pick up momentum, debtors can cause major accidents on the road. As your business is driven with prestige, backed by discipline, organization, positive cash flow, and strong leadership, it is inevitable you will unexpectedly find yourself near at least one of these three classes of debtors.
As a business owner, there are an endless number of tasks to complete and an unseen number of issues that arise without notice. Often times, the business operator wishes there were 30 hours in a day. Of course, as we all know, this is simply not the case. In order to scale an organization, a business owner must delegate certain activities to staff. When the business started, the owner was happy to be on the road selling their own product, but as the business has grown the owner’s skills and knowledge are now needed elsewhere.
Your sales team can sell. It's what they do. And they do it well.You have cultivated the right training & environment for their success. Every day they make countless connections for your business. And each day they bring in dollar after dollar. Now the sales machine is humming right along! Are you making the mistake of having them collect?
Harvest season is here. Supply will go up, demand will remain the same, and as a result wholesale prices will fall. You need a differentiator to stay competitive. Extending credit should be that differentiator. We are here to help.
Cannabiz Collects knows the cannabis industry. We also know credit worthiness and debt collection. We believe that offering credit will help our blooming industry to grow and blossom!
