Learn Why Charging Interest On Past-Due Balances is a Good Idea in the Cannabis Industry

By Danny Batler

In an ideal business operation, accounts receivable are not a worry. Federal restrictions governing the cannabis market, however, prevent many businesses from managing their businesses in the most efficient manner. Cannabis businesses are compelled by this difficulty to put in place innovative protections to guarantee a positive cashflow. Using an interest rate on past due invoices is one example that has aided the cash flow of numerous businesses. This method is used for a number of reasons and has helped many companies collect in a timely manner. 

What is Interest for Past-Due Invoices ?

Interest is a contractually set number that will be charged on a late payment. Interest will vary from company to company based on what best fits their business’ needs. Many businesses choose to use interest as a collection method because of what it imposes on debtors.  The interest grows over time increasing the amount that the debtor owes. This growing debt in cannabis industry encourages debtors to settle to avoid the amount from getting too high. Within the cannabis industry interest is especially important. 

Charging interest is crucial in the cannabis industry. Due to federal payment restrictions, many businesses extend credit for customers to use. In some cases this credit is not paid off. When customers choose to default on their debt, credit becomes quite perilous. The creditor is able to add interest at a set percentage to any unpaid invoices. Receiving payment without this interest might be considerably more challenging.

Why to Start Using Interest ?

There are several reasons that interest should be employed. The main objective of adding interest is to motivate debtors to make payments. Creditors encourage early payments by charging interest in order to have the debtors stop interest-bearing debt from accumulating. Debtors will take all reasonable steps to settle a debt that is increasing rapidly. This heightens the chances that you receive payment on time. 

The possibility that you will be paid before other creditors is another justification for beginning to employ interest. A debtor who owes you money frequently also has unpaid obligations to other creditors. However, the debtor will give priority to your payment if you are the only creditor with an established interest rate.

How to Set Up Interest ?

The most important part of establishing interest is making sure your customers sign an agreement with interest language before the transaction. By doing this the customer is aware of possible accrued interest on debt. In addition to making them aware of the interest, it also allows you to legally charge the interest because it is a signed legally bearing contract. 

Even with interest specific language listed in a signed contract, some debtors might continue to avoid payment. If this is the case, consider help from a trusted debt collector. In the cannabis industry CannaBiz Collects in the first and leading collection agency. CannaBiz Collects works completely on contingency, meaning you only pay if we collect on your behalf.