The Cannabis AR Problem Is Not What You Think
In traditional industries, accounts receivable management is about creditworthiness. Will the customer pay? In cannabis, the question is different. Most dispensaries have the revenue to cover their invoices. The issue is logistical: how does cash move from the dispensary's safe to your bank account (or your safe) when the banking system only partially cooperates?
This distinction matters because it changes the entire AR management approach. You are not managing credit risk in the traditional sense. You are managing collection friction. And that friction, left unmanaged, will quietly strangle your cash flow even while your income statement shows healthy revenue.
Cannabis distributors with poor AR management often report the same paradox: strong sales, growing revenue, and a constant struggle to make payroll. The money is out there, sitting in dispensary safes, waiting to be collected. The gap between revenue recognition and cash collection is where most cannabis distributors lose their footing.
Setting Up Your Aging Protocol
The 7-Day Rule
In traditional B2B industries, accounts receivable becomes 'past due' at 30 days and 'concerning' at 60. Cannabis does not have that luxury. The absence of reliable banking infrastructure, combined with the high cost of capital in the industry, means that every day of delayed collection costs you more than it would in a banked industry.
Your aging buckets should be structured as follows: Current (0 to 7 days from invoice), Attention (8 to 14 days), Escalation (15 to 21 days), Critical (22 to 30 days), and Collection Action (31 days and beyond).
At the Attention stage, a polite reminder is sent and a follow-up call is made. At Escalation, the sales rep is involved and the next delivery is held pending payment. At Critical, formal demand is made and the account is placed on COD going forward. At Collection Action, deliveries cease and recovery procedures begin.
This may feel aggressive compared to traditional industries, but the data supports it. Cannabis receivables that are not collected within 30 days have a recovery rate below 50%. At 60 days, that rate drops to roughly 20%. The cash is no longer sitting in the dispensary's safe; it has been spent on other suppliers, payroll, or inventory.
Automating the Reminders
Your accounting system should generate aging reports daily, not weekly. Automated email or text reminders should fire at 3 days past due, 7 days, 14 days, and 21 days. Each message should include the invoice number, amount, original due date, and clear instructions for how to submit payment. Remove all ambiguity from the collection process.
Collection Methods That Actually Work
Cash on Delivery (COD)
COD eliminates AR entirely. The driver collects payment at the time of delivery, counts it on site, and documents the collection. For new accounts, accounts with a history of slow payment, or accounts in geographic areas where banking is particularly difficult, COD should be the default.
More dispensaries will accept COD terms than most distributors expect. Dispensaries deal with cash all day. Having exact payment ready for a scheduled delivery is not a hardship; it is a matter of process discipline on their end. Make COD your standard term for new accounts and let customers earn extended terms through consistent payment history.
ACH and Wire Transfers
An increasing number of cannabis businesses have banking relationships that allow ACH or wire transfers. If your customers can pay electronically, make it the path of least resistance. Provide your banking details on every invoice, offer a small discount for electronic payment, and follow up promptly on any failed transfers.
Cash Collection Services
Third-party cash logistics companies have emerged to serve the cannabis industry. These services pick up cash from dispensaries, count and verify it, and deposit it into your account. The fees range from 1% to 3% of the collected amount. For remote accounts or accounts with large outstanding balances, the fee is worth the certainty and speed.
Structured Payment Plans
For accounts that have fallen behind, a structured payment plan is often more effective than aggressive collection. Offer to split the past-due balance over two to four future deliveries, with each delivery requiring payment of the current invoice plus a portion of the arrears. This keeps the customer ordering, keeps product moving, and systematically reduces the outstanding balance.
Cash Flow Forecasting in a Cash-Heavy Environment
Traditional cash flow forecasting assumes a predictable relationship between invoicing and collection. You invoice on day 1, the customer pays via ACH on day 22, and the cash hits your account on day 23. In cannabis, the relationship between invoicing and cash receipt is far less predictable.
Build Your Forecast on Collection History, Not Terms
Your stated terms might be Net 7, but if your actual average collection period is 18 days, build your forecast around the 18-day reality. Better yet, segment your forecast by customer payment behavior. Group your accounts into fast payers (0 to 7 days), moderate payers (8 to 21 days), and slow payers (22 days and beyond). Apply historical collection rates to each group.
Model the Cash Gap
The cash gap is the period between when you pay your suppliers and when you collect from your customers. If you pay your cultivator or manufacturer within 7 days but collect from dispensaries in 18 days, you have an 11-day cash gap. Multiply that gap by your average daily cost of goods, and you have the working capital required to keep operating.
For a distributor moving $500,000 in product per month, an 11-day cash gap requires roughly $183,000 in working capital. Every day you shave off your collection period frees up approximately $16,600 in working capital. That math should motivate your collection efforts.
Reserve for Uncollectible Amounts
Even with disciplined collection, some receivables will never be collected. Dispensaries close, lose their licenses, or simply refuse to pay. Establish a reserve for bad debt based on your historical write-off rate. For most cannabis distributors, a reserve of 2% to 4% of gross receivables is appropriate. Book this reserve monthly so that your financial statements reflect reality.
Pricing as a Collection Tool
One of the most effective AR management strategies is also one of the simplest: make payment speed a pricing variable.
Publish three price tiers. COD pricing reflects your lowest cost of service and provides the best margin for the customer. Net 7 pricing adds a modest premium, typically 1% to 2%, covering your cost of capital and collection effort for the extra week. Net 14 pricing adds a further premium. Do not offer terms beyond 14 days unless the account has a proven track record and sufficient volume to justify the working capital commitment.
This structure does three things. First, it incentivizes fast payment without creating adversarial conversations. You are not punishing slow payers; you are rewarding fast ones. Second, it bakes the true cost of extended terms into your pricing, protecting your margins regardless of when payment arrives. Third, it provides a natural leverage point when accounts start slipping. If a Net 7 account begins paying at Net 20, you have a clear basis for moving them to higher pricing or COD terms.
The Role of the Sales Team in AR Management
Sales teams and finance teams in cannabis distribution often operate in silos. Sales closes the deal and moves on. Finance chases the payment. This structure creates a misalignment of incentives: sales is rewarded for revenue, not for collectible revenue.
Consider tying a portion of sales compensation to collection speed. If a sales rep's accounts average 10-day DSO, they receive full commission. If the average creeps to 25 days, commissions are reduced or deferred until collection occurs. This aligns the sales team's interests with the company's cash flow needs and ensures that sales reps are vetting customer quality, not just customer volume.
Sales reps also have relationship leverage that finance teams lack. A call from the rep who visits the dispensary every week carries more weight than a form email from accounts receivable. Use that leverage strategically, especially for accounts in the Escalation and Critical aging buckets.