Your customer is only 15 days past due. Would you ship another $20,000 in product if you knew they were 90 days late with other suppliers and just had a $50,000 tax lien filed against them?
That information could change your credit decision.
The cannabis industry has widely reported over $4 billion in unpaid accounts receivable, and not every late payment comes from the same place.
Decades of commercial credit and collections experience show that late payments generally fall into 4 categories.
1. Managing Cash Flow
High taxes, declining wholesale prices, regulatory costs, and limited access to traditional financing put pressure on cannabis businesses. Even companies generating strong sales can struggle to pay suppliers on time
2. Prioritizing Who Gets Paid
When cash is tight, management has to make choices. Payroll, taxes, rent, and essential suppliers usually come first.
A company might owe 20 suppliers but only have enough cash to pay 12. The other 8 wait, regardless of when their invoices were due.
3. Administrative Problems and Disputes
Not every late payment signals financial trouble. Invoice discrepancies, delivery disputes, missing paperwork, or a backed-up accounts payable department can delay payment.
These issues can often be resolved through communication.
4. Financial Distress
A company can generate substantial revenue and still lose money because of compressed margins, unsold inventory, or high operating expenses.
Warning signs often include slowing payments, repeated broken promises to pay, unanswered calls, and new tax liens, especially when they appear together.
So how do you tell the difference?
Consider 2 customers, both 15 days past due.
Customer A has a temporary cash flow problem but continues paying other suppliers within terms.
Customer B is also 15 days late with you but is 60 to 90 days past due with several other suppliers and has just had a $50,000 tax lien filed.
Your aging report shows 2 customers who are 15 days late. Their credit risk may differ significantly.
Knowing how a customer pays other suppliers, along with changes in their financial condition, helps you decide whether to ship more products, adjust the credit limit, or step up collection efforts.
Before extending another $20,000 in credit, wouldn’t you want that information?
That’s why Reklaim Credit Solutions brings cannabis specific credit reporting, predictive credit scores, and daily portfolio monitoring to the industry.
