Service Solutions | 9.27.22 | The Devil is in the Details: Claiming Your Employee Retention Credit as a Cannabis Business
NCIA’s Service Solutions series is our sponsored content webinar program which allows business owners the opportunity to learn more about premier products, services and industry solutions directly from our network of established suppliers, providers and thought leaders.
In this edition originally aired on Tuesday, September 27, 2022 we were joined by the experts from ERT Credit for an exclusive webinar outlining how cannabis businesses can take advantage of The Employee Tax Credit (or ERC) which has currently only been claimed by a small fraction of cannabis businesses, and most importantly, as a payroll tax credit is not subject to Section 280E.
Think your cannabis-related business does not qualify for COVID-19 relief funds worth up to $26,000 per employee.? You’ll leave the session with a roadmap for next steps to determine eligibility and maximize your claim so you don’t miss out on a potentially guaranteed refund worth hundreds of thousands of dollars and in some cases millions.
At the conclusion of the discussion our panel hosted a moderated Q&A session to provide NCIA members an opportunity to interact with leading minds from the cannabis accounting and technology space, join today to contribute to future conversations!
40:46 – Audience Q&A (If your business is still operating – what are the taxes due on the tax credit?)
42:04 – Audience Q&A (I was told that ERC money is not available for the cannabis industry due to 280e. How are you navigating that compared to others trying to provide the same services?)
44:31 – Audience Q&A (Does this apply to cultivation facilities also?)
46:42 – Audience Q&A (What if we apply and don’t receive our money or we are denied the credit?)
48:09 – Audience Q&A (What if my accountant/lawyer says I don’t qualify?)
49:41 – Audience Q&A (How can I find more details on how to navigate the 280e concerns?)
50:58 – Audience Q&A (So if you went out of business before or soon after getting the tax credit you would not have any (or minimal) tax impact from taking the tax credit?)
53:24 – Audience Q&A (Do I have to spend the money on my payroll? Or can I use it towards my other business expenses? Any other restrictions?) 54:26 – Audience Q&A (So is this a credit for my company towards next year or do I get an actual check like a refund?)
When I first came into the market in 2016 almost every company told me that they don’t have collection issues, they either get paid COD or get paid “on time.” Well, as the recent reports about a dispensary stopping payments to vendors has hit the press, I thought it would be a perfect time to talk about an issue that has largely been ignored in the cannabis market: collections, and what you should do if you are not getting paid?
Almost every company I have spoken to, whether they are a grower, manufacturer, or service provider are extending some type of credit to some of their customers. With more companies in the cannabis space now extending credit to their customers, delinquent payments are on the rise and the management of your new “accounts receivable” can have a major impact on your cash flow.
Most of this credit extended today in the cannabis market is what we call “friendship credit,” credit that is extended to a customer who you have developed a personal relationship with and where no credit analysis was performed. Friendship credit may have worked in the past, but the rules are changing and as you may be experiencing first hand, many of these customers are not paying you on time and some are not paying you at all. If this is happening to you, what should you do?
The following is a common-sense approach to the problem of determining whether a customer has become a collection problem where you may need outside help. Customers that have a cash flow problem must choose which vendors they will continue to satisfy and which vendors they will not. If a company has insufficient cash on hand to pay all their vendors, some are not going to get paid on time. This can be a one-time problem, or it can be an endemic problem and if you don’t act promptly it may cost you.
The Customer is More Than 30 Days Past Due
Your customer always paid on a timely basis, you have transitioned them from paying you COD to credit terms and now they are 30 days past due. They answer your calls but promises for payments and clean up the past due balance are not met. Chances are you have a problem and depending on how old the debt gets, turning them over to a 3rd party collection agency may be the way to go and save you a customer. Yes, you read it correctly, save you a customer and get you paid, that is the goal of a collection agency.
The Customer is Not Returning Your Calls and Re-Ordering
Your customer is past due and ducking you. If they won’t talk to you after repeated attempts to reach them, their debt is 30-60 days past dues and getting older and they are not trying to re-order and pay down the old balance, a collection agency may be your only solution. Collection agencies have trained recovery professionals that focus on working with these types of accounts. A collection agency experiences this problem as a normal course of their daily activity and they are experts at getting your customer to the table because it’s what they do for a living.
The Customer Has Stopped Buying
If the customer has stopped buying and owes you money, even if it’s not past due you need to be on the alert. For whatever reason, if the account no longer needs you, they don’t have a reason to be prompt. If they go 60 days past due, you are probably going to need outside help to collect your money.
You Receive Negative Information on the Customer from Other Suppliers
Your customer is past due, and you receive some negative information on them from other suppliers who are also selling to them. When a company gets into trouble financially, they start allocating their available cash, the key important vendors may not see a problem, but the secondary vendors will. For example, if the account is a dispensary they need to have flower and concentrates on the shelf and therefore those suppliers will get paid first. But if you manufacture infused THC/CDB sports drinks that do not sell as well you might not get paid on time if the dispensary has cash flow issues. If you have relationships with other suppliers leverage them to find out what is going on.
Final Thoughts
If you are extending credit you will need to implement a collection policy that details how to manage and collect from a delinquent customer as well as what is your point of no return is where you need to pull the trigger and place the customer with a 3rd party collection agency. The warning signs listed above are usually evident during your internal collection efforts and the sooner you recognize them the better. Prompt action will save you money. If the account is behaving erratically, you should turn them over to a 3rd party collection agency as they trigger the 60-90 days past due signal because probably things are not going to get better, only worse.
Sam Fensterstock is the SVP of Business Development at AG Adjustments (AGA), a 48 yr. old provider of 3rd party commercial collection services where he oversees sales, marketing and revenue. Sam has spent his entire business career as an entrepreneur and senior executive in the commercial credit & collection space. Sam been a founder and played a key role in the dynamic growth of several leading niche commercial credit risk management companies including F&D Reports, CreditRiskMonitor and PredictiveMetrics (sold to SunGard/FIS in 2011) and AGA. Sam is widely considered a vendor expert in the order to cash and credit and collection process. AGA is the only national collection agency focusing in the cannabis market Sam has been an active member of the NCIA’s Banking & Finance Committee since 2017. Sam is the author of the NCIA published White Papers “The Future of the Accounts Receivable & Credit Function in the Emerging Cannabis Market” and “Implementing an Initial Trade Credit Policy for an Emerging Cannabis Related Business” as well has authored several articles on the topic of trade credit and collections in the cannabis market.
Granting credit has not yet become standard in the cannabis market, but as discussed in my article “Trade Credit in Cannabis,” published in the May issue of mg, I believe it will be in the future. Therefore, it is important that a company create a credit policy to define how it will manage its credit and collection processes and evaluate credit risk. Once that is accomplished, the next, and most important, step is to develop a credit application.
Why do you need a credit application?
A credit application provides basic information about a customer’s business and offers measures of protection that will increase the ultimate collectability of an account if the customer doesn’t pay. Companies in the cannabis market may aid their collection efforts by requiring all customers, even those that are on cash terms, fill out a credit application. I cannot emphasize enough how many times my firm, AG Adjustments (AGA), has been successful in recovering a client’s past-due monies because the clients took a proactive approach and obtained a well-drawn-up credit application.
The credit application is one of the primary tools available for protecting a company and controlling credit risk when extending trade credit to customers. Remember, taking a check from a customer is a form of credit. Even customers who are paying cash on delivery should fill out a credit application.
What is a credit application?
A credit application is a contract between seller and buyer. A good credit application will benefit the seller; a bad one, the buyer. Therefore, it is important to be certain the credit application, whether electronic or on paper, contains all the safeguards and guarantees available to reduce risk.
Securing a credit application does not guarantee payment, but it is one of the more significant documents to assist in making good credit decisions and ultimately collecting past-due accounts receivable and associated collection fees. The adage “the sale is not complete until the money is in the bank” is as true today as ever. A good credit application will assist in getting money into the bank.
What do companies selling into the cannabis market need to know to control credit risk?
A credit application is the first step in gathering information about potential customers. Even if customers pay in cash, the day will come when that system changes, and getting information about accounts at the start of business relationship is key. The more you know about its debtors, the better. In addition, collecting credit information will make it easier to determine exactly how much credit to extend a customer.
Never assume all information on the application is correct. Verify the information provided before granting credit. The sales department must make sure every customer fills out and signs a credit application prior to delivery of any goods or services, even if the customer is paying C.O.D.
A credit application serves two purposes: It is a data-gathering tool and a contract. As a contract, it specifies the rights and obligations of both the customer and the creditor. The application should be written in a way that provides the creditor an advantage if business relationship with the client falters. As the saying goes, “Credit is not a right but a privilege.”
Verifying the credit application
The first thing to do once an application is obtain a commercial credit report from a leading credit bureau such as Dun & Bradstreet or Experian. Many prospective customers may not have a lengthy credit history, but that will change as the cannabis industry moves forward. Contact at least three trade-credit references, as well as the applicant’s bank, to verify the existence of accounts. Be sure all references are legitimate, or at least exist if one or more are difficult to contact. Any false information on the credit application is a strong indicator the potential customer may not be reliable. If the buyer is looking for a substantial credit line, review their financials, especially a statement of cash flow. If the applicant is operating in a negative cash position, ensure they will have enough cash available to pay their debt. Limit their credit line or, at the very least, modify payment terms if it seems an applicant may have a cash flow problem.
After credit is extended
Periodic credit reviews are a necessity. Account defaults arise with existing long-term customers as well as new ones. Customer credit limits should be reviewed periodically—at minimum, once a year. Obtaining current credit bureau reports about the largest customers annually is a good idea. Stay on top of aging accounts receivable. If a customer is always sixty to ninety days past-due on part of their balance, they are only one period away from becoming a problem.
When trade credit becomes the norm in the cannabis industry, asking a new customer to fill out a credit application will become standard practice. Currently, this is not the case in the cannabis industry; nevertheless, AGA recommends companies operating in the market implement sound credit policies and processes now in order to prepare for the near future.
Sam Fensterstock is the SVP of Business Development at AG Adjustments, a leading provider of 3rd party commercial collection services and a member of the NCIA’s Finance & Insurance Committee. Sam has spent his entire business career as an entrepreneur and senior executive in the commercial credit & collection space. He has been a founder and played a key role in the dynamic growth of several leading niche commercial credit risk management companies and is considered an expert in the order to cash and credit and collection process. Prior to joining AG Adjustments, Sam was the Director of Business Development at PredictiveMetrics, a statistical based credit and collection scoring and modeling company that he helped grow and sell to SunGard (FIS) in 2011. Sam can be reached at samf@agaltd.com or 631-719-8096.
Photo Credit: Cafe Credit via Flickr, under the Creative Commons License
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Sam Fensterstock is the SVP of Business Development at 
A credit application is the first step in gathering information about potential customers. Even if customers pay in cash, the day will come when that system changes, and getting information about accounts at the start of business relationship is key. The more you know about its debtors, the better. In addition, collecting credit information will make it easier to determine exactly how much credit to extend a customer.