Heartland Session Sneak Peek: Procurement, Inventory Management & Cash Flow
on July 07, 2021
I hope you’re excited to attend VGM’s 20th Anniversary Heartland Conference. I’m particularly looking forward to moderating a panel of experts during the session: Procurement, Inventory Management & Cash Flow.
One of the questions I often get is about cash accounting and staying cash flow positive. Here’s a quick run through on the topic with three takeaways, but be sure to join me, and our panelists Jason Plogher, Director of Supply Chain, DASCO Home Medical Equipment and Tim VanAntwerp, Owner, Van's Medical Equipment, at Heartland for more and to get your pressing questions answered.
Cash Accounting and Cash Flow
Cash accounting recognizes sales and expenses when revenue is actually transacted. The accrual method applies sales at the time of order and expenses on invoice date. In either case, your CPA will want you to be consistent in your methodology.
DMEs, in general, struggle with cash flow. Tight margins, audits, protracted payments, and limited vendor terms contribute to the cash flow challenge. These areas all intersect and determine the health of a company.
Put simply, 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 upon your business.
Minimize Liability & Rolling Debt
On the vendor side, you have many options. Dealing with wholesalers (e.g., McKesson, Medline, Lake Court) can help minimize your inventory liability and rolling debt. However, you may pay more. 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. Manufacturers are more likely to provide extended terms.
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 how to get as close to that scenario as possible.
Heartland Featured Session
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 www.vgmheartland.com.
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