Addressing the Cannabis Credit Crisis: Collection Agencies Step Up to Secure Payments
In the ever-evolving California cannabis market, an alarming credit crisis has taken center stage, demanding attention. With unpaid taxes exceeding $250 million and accounts receivable reaching up to $600 million among marijuana-related businesses, the industry faces significant financial challenges. To combat this issue, a coalition of cannabis firms in California is pushing for the passage of Assembly Bill 766. This proposed legislation aims to enforce timely payments within 15 days of the invoice date for bills totaling $5,000 or more. While the bill’s journey towards implementation may take time, it holds the potential to alleviate the current credit crisis and prevent future occurrences.
Acting Swiftly
Considering the urgency of the situation, what steps should marijuana-related businesses take if they encounter seriously delinquent customers? As previously suggested, engaging a reputable third-party collection partner becomes crucial when customers fail to communicate and fall behind on payments. By referring to a collection agency, businesses can significantly enhance their chances of recovering debts, as highlighted in the graph below from the Commercial Collection Agencies of America. This graph demonstrates that the longer a company holds onto nonpaying debt, the lower the probability of successful collection.
Four Reasons to Utilize Collection Agencies
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Customers More Than 60 Days Past Due
Suppose a previously reliable customer has transitioned from cash on delivery (COD) to credit terms but is now consistently 60 days past due. Despite promising payment during communication, they fail to follow through. In such cases, it is crucial to recognize the problem and consider involving a third-party collection agency. Doing so will bring focused attention to the collection efforts, significantly increasing the likelihood of payment recovery for your company.
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Unresponsive Customers
When a customer becomes unresponsive after repeated attempts to establish contact via phone and email, a red flag arises. If their debt remains unpaid for 60 days and continues to age, enlisting the assistance of a collection agency becomes a viable solution. These agencies specialize in recovering outstanding bills, aiming not only to secure payment but also to mend the relationship and encourage future purchases.
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Cessation of Purchasing
If a customer owes your business money, ignores your attempts to reach out, and ceases to make new purchases, it’s essential to be alert. When customers no longer require your products or services, their incentive to promptly settle outstanding payments diminishes. They may redirect those funds to alternative suppliers. If a customer remains unresponsive for 60 days, refrains from placing new orders, and fails to respond to your calls, it becomes crucial to seek external support from a collection agency to collect the owed amount.
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Negative Trade Information
Even if an account is not yet past due, receiving negative trade information from other suppliers raises concerns. This information should be carefully examined, as companies facing financial difficulties often prioritize certain vendors over others. While primary vendors may remain unaffected, secondary suppliers may encounter payment issues. If your customer is exhibiting payment problems with other suppliers, it is crucial to recognize the potential risk and address it promptly with the assistance of a collection agency.
Reaping the Benefits of Collection Agencies
The collections industry, with its longstanding presence in America, serves as a valuable resource for creditors seeking to collect outstanding debts from customers who have defaulted. Collection agencies employ experienced “career collectors” well-versed in negotiating with debtors, significantly increasing the chances of successful payment recovery. Considering that collection agencies typically charge fees around 20%, their services prove to be a cost-effective measure compared to the potential losses cannabis companies face from non-payment and subsequent write-offs.
Conclusion
As the California cannabis credit crisis intensifies, the need for proactive measures becomes more apparent. Collaboration with reputable collection agencies emerges as a practical solution to secure payments and mitigate financial risks. By recognizing the warning signs, such as extended payment delays, unresponsiveness, discontinued purchases, and negative trade information, cannabis businesses can take timely action to protect their interests. Embracing the expertise of collection agencies not only ensures a higher probability of recovering outstanding debts but also contributes to the stability and longevity of the industry as a whole.
