How Michigan Cannabis Businesses Can Recover Outstanding Debts
Ensuring that your cannabis business gets paid for its products and services is critical for maintaining cash flow and promoting sustainable growth. In this article we’ll get into an inevitable issue that typically arises when scaling your cannabis business - debt recovery.
Here’s a comprehensive guide on how Michigan cannabis businesses specifically can effectively recover outstanding debts.
Overview of Michigan's Debt Collection Laws
Michigan has specific laws you should be aware of that govern debt collection practices.
Key laws you should be aware of are:
The Michigan Collection Practices Act (MCPA)
The Michigan Collection Practices Act (MCPA) is a state law designed to regulate debt collection practices and protect consumers from abusive, deceptive, and unfair tactics by debt collectors.
This law prohibits debt collectors from engaging in certain harmful actions, such as using threats of violence, employing obscene or abusive language, publishing lists of individuals who allegedly refuse to pay debts, and causing continuous harassment through repeated phone calls.
Consumers are granted specific rights under the MCPA. Debt collectors are required to provide clear information about the debt, such as the amount owed and the name of the creditor, along with a statement that the debt will be assumed valid if not disputed within 30 days.
The Federal Fair Debt Collection Practices Act (FDCPA)
The Federal Fair Debt Collection Practices Act (FDCPA) is a federal law that aims to protect consumers from abusive, deceptive, and unfair debt collection practices by third-party debt collectors.
The FDCPA prohibits debt collectors from engaging in behaviors such as using threats of violence, employing obscene or profane language, and making repeated phone calls intended to annoy or harass.
It also restricts debt collectors from falsely representing the amount, nature, or legal status of a debt and from threatening legal action they cannot or do not intend to take. With that said, here’s how you can go about recovering the debts owed to you.
How To Effectively Collect Debts in Michigan
Start with Friendly Reminders (Day 1 - Day 14)
Begin your debt recovery process with polite and friendly reminders. A simple nudge is often all it takes for most clients to settle their accounts.
Day 1 - Email: Send a courteous email reminding the client of their outstanding debt. Clearly state the amount owed and the due date. Maintain a friendly tone and offer assistance if they need help with the payment process. Here’s a template you can use:
Template Email for Outstanding Debt Reminder (Day 1)
Subject: Reminder: Outstanding Payment
Dear [Client's Name],
I hope this message finds you well. I am writing to remind you of the outstanding payment for the services/products provided by [Your Company Name].
According to our records, the payment of [Amount Owed] was due on [Due Date]. We understand that oversights can happen, and we would appreciate it if you could arrange for the payment at your earliest convenience.
If you have any questions or need assistance with the payment process, please do not hesitate to contact us. We are here to help and ensure that everything proceeds smoothly.
Thank you for your prompt attention to this matter. We value your business and look forward to continuing our successful relationship.
Best regards,
[Your Full Name]
[Your Position]
[Your Company Name]
[Your Contact Information]
Day 7 - Phone Call: If the email goes unanswered, follow up with a friendly phone call. Politely discuss the overdue payment and ask if there are any issues preventing them from paying. Sometimes a personal touch can make a big difference.
Day 14 - Letter: If emails and phone calls don't work, send a formal letter reminding the client of their debt. Include all relevant details such as the amount owed, the due date, and any previous attempts to contact them. A formal letter adds a layer of seriousness while still being polite. Below is a template you can use:
Template for Formal Debt Reminder Letter
[Your Company Letterhead]
[Date]
[Client's Name]
[Client's Address]
[City, State, ZIP Code]
Dear [Client's Name],
Re: Outstanding Payment Reminder
I hope this letter finds you well. We are writing to formally remind you of the outstanding payment for the services/products provided by [Your Company Name]. Despite our previous communications, we have yet to receive the payment, and your account remains overdue.
Outstanding Amount: [Amount Owed]
Due Date: [Original Due Date]
Invoice Number: [Invoice Number]
Previous Attempts to Contact: Email sent on [Email Date], Phone call made on [Phone Call Date]
We understand that oversights can occur, and we would appreciate your prompt attention to this matter. Please arrange for the payment to be made within the next seven days to avoid any further action.
For your convenience, we offer several payment methods:
[Payment Method 1]
[Payment Method 2]
[Payment Method 3]
If you have any questions or need assistance with the payment process, please do not hesitate to contact us at [Your Contact Information]. We are here to help and ensure that this matter is resolved smoothly.
Thank you for your immediate attention to this matter. We value your business and look forward to continuing our successful relationship.
Sincerely,
[Your Full Name]
[Your Position]
[Your Company Name]
[Your Contact Information]
Develop a Structured Follow-Up Process (Day 15 - Day 45)
If friendly reminders don't result in payment, you’ll need to implement a structured follow-up process. Consistency and escalation are going to be key in this phase of the collection process.
Day 15 - Initial Reminder: Start with a gentle reminder shortly after the payment is overdue. Reiterate the payment terms and express your willingness to assist if there are any issues.
Day 25 - Follow-Up Reminder: Send an additional reminder, slightly more assertive, indicating that the payment is still overdue and outlining the consequences of continued non-payment.
Day 35 - Final Reminder: Send a final warning letter, more formal, stating that failure to pay will result in further action, such as involving a collection agency or legal proceedings.
Day 45 - Escalation: If the final reminder is ignored, escalate to more formal demands. Indicate the next steps, such as involving a collection agency.
Use Professional Debt Collection Services (Day 46 - Day 75)
If your internal efforts are unsuccessful, it might be time to bring in the professionals.
Day 46 - Hiring Collection Agencies: Consider hiring a professional cannabis debt collection agency in Michigan. These agencies specialize in recovering debts and often have higher success rates due to their expertise and resources. Ensure the agency is licensed and complies with Michigan's debt collection laws. Research their reputation and track record. You’re going to want to supply the agency with all necessary documentation and details of the debt. Clear communication with the agency can improve the chances of successful recovery.
How Cannabis Debt Collection Agencies Work
Cannabis debt collection agencies typically work on a contingency basis. This means that they only get paid for work when they successfully collect a portion of the debt. They do not charge an upfront fee to the creditor (the client), but instead take a percentage of the amount recovered, typically ranging from 20% to 50%, depending on factors such as the age and difficulty of the debt.
Advantages for Creditors: Creditors prefer this model when they do not want to incur upfront costs or take on the risk of paying fees for unsuccessful recovery efforts. The risk is placed on the collection agency, which creates an incentive for them to pursue the debt vigorously.
Advantages for the Agency: Debt collection agencies benefit from potentially high returns on successful collections, especially for large debts or those that are more easily recoverable.
Risk: If the agency is unsuccessful in recovering the debt, they absorb the costs of their recovery efforts, which can be a significant risk for the agency depending on the complexity of the case. Working on contingency ensures that both the creditor and the agency are aligned in their goals and maximizes the chances of the debt recovery being successful. Choosing a reputable industry focused collection agency is key for recovering cannabis business debts.
Let’s work together!
Get a free consultation to talk about your case and start your process to get your money back.
