CONGRATULATIONS…Your AR is guaranteed!
Your partner really really really promises to pay you on time.
You should frame that guarantee and hang it on the wall next to your participation trophies! It will look great there.
It will also might be worth about the same in a collections proceeding.
Here is a hot take that the cannabis industry refuses to learn: a guarantee from someone you know nothing about is not a risk management tool…It is a comfort object.
It is a grown-up security blanket stitched together with legal language and wishful thinking.
Let me paint you a picture.
You extend net-30 terms to a regular wholesale buyer. No credit check. No background review. No verification that the principals behind this LLC have not left a trail of unpaid invoices (hmmm…), personal bankruptcies, or outright fraud across three other states.
But you got a signed guarantee, so you feel good about it.
Sixty days later the invoice is past due. You send a reminder. Make a call. Then another. Excuse. “Offset”. Excuse. No response. Etc. Than the email bounces. Now what?
Sue to find out that your “guarantee” is pooled with $5m owed to other brands and sits behind $50m in corporate debt and another $10m in tax liens?
Good luck with that.
This is not hypothetical. This is Tuesday in cannabis B2B.
A guarantee is only as good as the credit of the guarantor behind it, and you cannot know what it is worth if you have no diligence in who is signing it.
A guarantee without a credit check is a contract without context. It tells you someone was willing to sign something.
It tells you nothing about whether they can or WILL ever make you whole.
Cannabis operators extend hundreds of thousands of dollars in trade credit every month on exactly this basis. A handshake, a signed agreement, and a corporate guarantee from a company whose trade history has never been analyzed.
Then they act surprised when the aging report turns ugly and the legal fees to chase a judgment exceed the amount owed. Doh!
Here is the discipline the industry needs to actually adopt:
Pull a credit report.
Run a background check on the principals.
Look at payment history.
Ask for trade references and call them.
Understand the financial profile of whoever is guaranteeing your receivables before you let them walk out the door with your product.
A guarantee from a creditworthy, financially stable buyer is a meaningful risk mitigation tool.
A guarantee from someone you have never vetted is a piece of paper you might one day hand to a collections attorney while you both quietly calculate whether it is even worth pursuing.
The operators who survive the next five years will treat trade credit like the financial instrument it is, not like a favor between friends.
A guarantee by itself is not due diligence.
It is what you get when you skip it.
Reklaim Credit Solutions can provide these insights!