by Cody Ziering and Brett Gelfand, Managing Partners, CannaBIZ Collects
As a canna-business operator, hiring a 5-star sales team is one of the greatest keys to success. You spend time and effort recruiting to ensure the candidates are capable of professionally representing your business. Your sales team is the face and brand of your organization. They work long hours, making introductions, persistent follow-ups and cultivating true relationships that yield cash and long-term growth for your business.
However, what happens when one of your clients doesn’t seem to be paying within the terms of your agreement. This customer has fallen behind on payments and is now a past-due account. “We are owed $50,000 by one of the largest dispensaries in the state, but we don’t want to ruin our relationship with them,” has become a common statement heard throughout the cannabis industry. Even more worrisome, these fears are justified.
Ruining a profitable relationship like this has the potential to disrupt sales, cash flow, bottom line performance, and carries the potential to sink the business all together. Most growing businesses in the cannabis industry do not have the size, resources or infrastructure to hire full-time accounts receivable personnel. One of the worst decisions a canna-business can make is to pay salespeople to spend their time selling a client on writing a check for past orders, when they should be focused on acquiring new business. Making the sales team collect on unpaid invoices forces them into a precarious situation. After building a sensitive business relationship, they must now approach their clients, and become the “bad guy bill-collector.” This label will then forever be applied in your client’s mind about your sales staff and from then on, will create a tenuous business relationship.
A canna-business has the option to assign a support staff member or “inside sales” to collect in-house. But that, in turn, will result in the same problem. It takes them away from productive work and puts your company in an awkward position that can damage the relationship your salesperson worked so hard to cultivate.
Similar to hiring a painter, canna-companies are starting to seek help to recover on their past-dues. If you want the outside of your house painted, you have two options. Do it yourself and spend hours and hours painting, or hire a painter and have the job professionally completed. A professional painter can paint your house more effectively (does a better job) and efficiently (can do it faster than you could yourself). The same can be said about professional A/R management or collection firms. These firms specialize in recovering accounts receivable and are more adapt and capable of collecting those debts for you.
When you have a difficult collection, especially a collection where the working relationship between you and the client is important, outsource the work. Find an agency that professionally manages accounts receivables and collectables. This way, you, your sales people, and your company are never the bad guy. By outsourcing your canna-business’s past due receivables, the agency will professionally communicate with debtors to recoup lost revenue quickly, and more importantly relieve the stress and potential conflict of chasing down these accounts internally. If debtors do not comply, agencies do their best to advise their clients if the money owed is more valuable than a soured relationship, which may result in legal action.
Many collection agencies offer their services on a contingency basis. When most attorneys require a retainer fee and charge steep hourly rates (sometimes exceeding $600/hour), contingent collection agencies charge nothing unless successful. They instead make a percentage of what they collect for you, only after your business gets paid. While it is possible that you might save by using an hourly attorney, it is highly unlikely. Collection agencies are businesses designed for one purpose: to recover their client’s past due A/R. They do so effectively and efficiently.
Reputable collection agencies offer their clients different collection strategies with different levels of aggressiveness. This should be based on what their client deems more valuable; the cash or the relationship. The agency that you hire should be able to pursue the debtor from YOUR direction. The agency you hire should be able to provide you a frictionless collection. A collection where all parties remain satisfied. All parties stay happy and calm, while the sales relationship remains intact. Best of all, your business recoups cash quickly, while still allowing your sales team to continue growing your business.
So do the smart thing, and don’t throw a wrench in the gears. Let your sales team hum and outsource your collections.
Brett Gelfand and Cody Ziering, Managing Partners of CannaBIZ Collects, were formerly executives at a vertically integrated Colorado cannabis company.
Recognizing the challenges with credit and collections in the cannabis industry, Brett and Cody resigned in order to lead the efforts to better the credit and collection practices for canna-companies nationwide.
Partnering with a seasoned commercial collection attorney, Brett and Cody have now helped to serve over 200 clients in the cannabis space recover lost receivables and reduce their client’s credit risk.