How Inflation Is Hammering The Cannabis Industry?
By Danny Batler
Both consumers and businesses are suffering as a result of the inflation rate reaching record highs. Many Americans' purchasing power has become constrained as the cost of basic requirements increased. Many companies have been struggling to keep up with the effects of inflation. They have had to raise prices to compensate for the increased amount they are paying for inventory. Due to the price increase, many consumers are choosing to only purchase essential goods. They are also choosing to hold off on big purchases, as the Federal Reserve increases interest rates to combat inflation. One industry that has been greatly affected is the cannabis industry. Specifically, the management of accounts receivable and collections within the cannabis industry.
When dealing with accounts receivable within the cannabis sector there are a few things to remember, especially when the inflation rate is high. The first thing you must remember is to collect quickly. While operating a business amid high inflation rates, it is important to collect quickly. If you wait, the amount that you were owed won’t be worth nearly as much in the future. For example, if the inflation rate is at 8% and you are owed $100, you have to collect $108 to have the same buying power. This can be summarized as the time value of money. The time value of money states that, “A dollar today is worth more than a dollar tomorrow”. This concept is only amplified by high inflation. The only thing worse than having to wait for your money, is having that money devalue as you wait. It is also important to collect quickly because the longer you wait, the more likely it becomes that the debtor will be in even more financial trouble. If a debtor is struggling to pay you, it is likely they are unable to pay other lenders. To ensure you receive payment on time, you can use a number of methods. The two most common are a personal guarantee, and a signed contract with interest bearing language.
The other big problem the cannabis industry is facing is that there is an over-supply of product on the market. With an over-supply of product, cannabis companies continue to slash prices on product, causing difficulty for brands to compete. That is why, we are seeing more and more extension of trade credit within the cannabis industry.
Many purchases in the cannabis market are made using extended credit. This is because banks forbid cannabis businesses from accepting credit cards or receiving easier access to capital because the substance is still prohibited at the federal level. Without the help of banks, cannabis businesses are left to figure out finances on their own. This also means that they cannot protect themselves from inflation in the same way that many traditional businesses do. Typically, the Federal Reserve will increase the interest rate to slow demand. However, since cannabis companies can’t use traditional banks it becomes hard for the industry to regulate interest rates to keep up with the effects of inflation.
Therefore, when a client goes delinquent, it is so important to collect as soon as possible. Make sure to stay on top of accounts receivable and if any client does not pay on time, send a final notice before escalating the subject. If after that final notice, they still are not paying, it is time to use the industry leading collection agency, CannaBIZ Collects.
Do not let your accounts receivable decrease in value because you were not able to collect in a timely manner. For more tips regarding debt collection within the cannabis industry head to Cannabizcollects.com