Standard Guide for Accounts Receivable (AR) and Collections

Abstract

4.1 Business Process Guidelines—Cannabis businesses’ best practices are to develop a standard operating procedure (SOP) that addresses: 4.1.1 Setup of New Customers—Ensure you have correct contact information and any required regulatory information such as a license number to be used on both a manifest (if required) and invoice. Typically, this information would come from your sales team and be confirmed either with state track and trace systems or through another third-party system. Request that the customer sign a contract for purchase of goods. 4.1.2 Send Invoice Immediately—For faster collections, send customers invoices as quickly as possible. Include the invoice with delivery of goods if possible. Also, make sure that the invoices are error free. Wrong invoices delay collections. Be sure your invoice includes payment instructions and terms. A signature on the invoice from the receiving business is highly recommended and could be necessary if there is a dispute about a delivery at a later date. 4.1.3 Send Reminders Well before the Due Date—Customer payments can be delayed when they inadvertently miss the due dates. Implementing strategies such as sending reminder e-mails and having the sales team check in with the customer can greatly assist customers in addressing their payment responsibilities in a timely manner. 4.1.4 Follow Up on Overdue Payments—Properly following up on overdue payments ensures that the outstanding invoices are addressed promptly, encouraging timely payments and improving cash flow. If payment is overdue, additional orders should not be fulfilled. Sales team members can work on collections, but once a payment is past due, the finance team should be leading the collections efforts. 4.1.5 Train Your Employees—Collecting accounts receivable is no easy job. You have to walk the tightrope between maintaining customer relationships and ensuring cash flow. Training your employees on various skills such as negotiation, clear communication, ethics, and persuasion becomes important to ensure strong collections and customer relationships. Often, sales staff are responsible for collecting payments as they visit customers in person. Ensure proper internal control procedures per generally accepted accounting standards (GAAP) are in place to set up the company for success. 4.1.6 Uncollectible Accounts—Based on the company standards, when an invoice is considered uncollectible (usually because of lack of response from the debtor over a determined time frame), you can choose to send to collections, file a claim in small claims court, use an attorney to send a demand letter, or write off the invoice. Set up a procedure based on your risk tolerance and standard order size. Some states in the United States have a reporting process to send past due information to state regulators.