Cannabis companies are extending credit terms faster than they’re building the infrastructure to manage the risk. That gap is where write-offs come from.
On July 1st, I wrote about the 5 Cs of Credit, the framework I’d point any company toward as they start managing AR, especially if the person taking it on is new to credit and collections. Over the next few posts, I’ll break down each of the 5 Cs individually, since each one matters on its own and understanding why is critical to successful AR and customer management.
The first of the 5 Cs is Character. This C comes down to two questions: will this customer pay you, and how do they run their business?
So how do you figure out if a customer asking for $20k in credit terms actually has strong character, not just that they seemed like good people at a trade show and like your product?
Start with their track record. Pull whatever public records and payment history you can find on the owners and the company, and check the owners’ LinkedIn for past businesses and whether those were successful.
Then ask whether they’re willing to fill out a credit application. This isn’t yet standard in cannabis, but if they won’t, that’s a red flag right off the bat.
I look at cannabis much like the restaurant business. A dispensary is like a restaurant in that most restaurants have a primary supplier delivering about half the goods they need to operate, then fill in the rest with local suppliers for the high quality and perishable goods a local guy handles better.
But in the restaurant industry, almost every restaurant, brand new or 10 years in, fills out a credit application that drives a credit review before the first order ships. If the owners won’t fill one out, most vendors won’t do business with them. Period.
After that, these are the 5 most important facets of character I’d focus on.
Historical payment behavior — Do they consistently pay suppliers on time, late, or only after repeated collection efforts? If they’re a brand-new company, you won’t find much, but if you know what the principals ran before, their payment behavior there is worth a look.
Promise to pay reliability — When they commit to a payment date, do they honor it? Multiple broken promises tell you something.
Communication when problems arise — Do they proactively reach out when invoices go past due, or do they avoid your calls and emails? Going dark tells you something too.
Treatment of other vendors — A customer that routinely stretches one supplier will likely do the same to others. Even if you’re getting paid on time now, how are they treating the rest of their vendors?
License, tax, and regulatory conduct — Unpaid taxes, license problems, or repeated compliance issues can signal broader management and integrity concerns.
Character is not what a customer says about themselves. It is what their payment behavior proves over time. Reklaim Credit Solutions is being built to help you see it.