A struggling cannabis business doesn’t stop paying all its suppliers at once. It decides who gets paid now and who has to wait.
In the 1990s, I represented food companies owed money by distressed New York City restaurants and often served on creditors’ committees. Most of those restaurants closed.
Thin margins or a new competitor down the street could quickly tighten cash. Taxes went unpaid. Owners choose which suppliers to pay. When one cut them off, they opened an account with a new supplier who had no way of knowing they were behind with everyone else.
That new supplier could end up taking the biggest loss.
Cannabis businesses face similar pressure today, with one big difference. Because marijuana remains federally illegal, cannabis businesses generally can’t reorganize under Chapter 11. When one closes, unsecured suppliers can recover little or nothing.
Picture a customer paying you on time on a $15,000 balance. Now imagine discovering it’s 90 days past due, with 5 other suppliers, and a tax lien filed against it.
Would you still ship the next order without talking to them?
Your own AR aging can’t show you that. It only shows how a customer pays you.
Moving everyone to COD protects cash, but it can cost sales, shelf space, and the account itself.
Knowing your customer personally isn’t the same as knowing your customer’s credit risk.
Reklaim Credit Solutions is a contributory network. Suppliers contribute de-identified AR aging data so participants can see how customers are paying other suppliers, along with public records and predictive credit scores.
More than 30 years since those restaurant days, the lesson hasn’t changed.
The earlier you recognize a customer’s financial problems, the better your chances of keeping them from becoming your payment problem and, eventually, your write-off.
#CannabisIndustry #CannabisCreditRisk #ReklaimCreditSolutions
