Heartland Session Sneak Peek: Inventory Management, Procurement & Cash Flow
on May 16, 2022
By Gerry Finazzo, Regional Account Manager, VGM & Associates
I hope you’re excited to attend VGM’s 2022 Heartland Conference. I’m particularly looking forward to moderating a panel of experts during the session: Inventory Management, Procurement & Cash Flow.
Throughout my travels, many members lament the challenge of staying cash flow positive while maintaining an inventory that allows them to serve their patients in a timely manner. Recalls, chip shortages, shipping charges, surcharges, inflation, backorders, warehouse space, FTEs, and much more go into decisions about inventory and purchasing which affects cash flow.
DMEs, in general, struggle with cash flow. Tight margins, audits, protracted payments, and limited vendor terms contribute to the cash flow challenge. These areas intersect and determine the health of a company. Put simply, DME businesses want to get paid more – sooner; and pay vendors less – later.
Multiple Payer Sources
When it comes to Medicare, Medicaid, and private insurers, the only thing a DME can do is make sure their claims are accurate and complete upon the first submission. With few exceptions, the fee schedule is set in stone. It is advisable to have multiple payer sources – Medicare, private insurances, retail, VA, SNS/LTC, hospices, and others so that no single payer can have a terminal impact on your business.
Minimize Liability & Rolling Debt
On the vendor side, you have many options. Dealing with wholesalers (e.g., McKesson, Medline, Lake Court, Cardinal) can help minimize your inventory liability and rolling debt. Going direct to manufacturers may get you a cheaper price but that usually comes with a commitment to larger orders. Your debt exposure increases, and any CPA will tell you that inventory is a liability.
Lease for Growth Areas
Leases are a great tool to improve cash flow. In the case of complex rehab, you can get a lease on a $10,000 chair and pay it off over 12 months to make you cash positive immediately or within months of the transaction. However, I have seen DMEs get quashed by leases. If used for specific areas of growth, leases will work. If a lease is being used to pay a bill for commodes, walkers, and crutches, there is a bigger problem, operationally.
The dream scenario is that your vendor pulls up their truck to your back door at 9 a.m. When a customer comes through the door and needs a walker, you go to that truck and get a walker. The customer pays you $40 for the walker and leaves. You go to the truck and pay the vendor $20 for the walker.
The trick is figuring out how to get as close to that scenario as possible.
Get great advice and more during the Heartland Conference Panel: Procurement, Inventory Management & Cash Flow moderated by Gerry Finazzo. During this session, attendees will learn how to identify ways to improve purchasing practices, mitigate inventory liability, identify ways to increase cash flow and lower activity costs. Learn more and register at vgmheartland.com.
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