Finances

Vendor Agreements: Understand Terms, Adjust Practice Policies

By Pamela Miller, OD, JD

Base your practice policies on a close reading of the terms of the agreements you sign with vendors. Taking the time to do so can save you money in the long run.

Practice owners have a multitude of vendors to deal with–ranging from contact lens and frame vendors to construction contractors and beyond. The hustle and bustle of operating an independent practice makes monitoring these vendors difficult, but it is essential to understand the terms of your agreement with each of these vendors. Once you understand your vendor agreements, you can craft practice policies on the purchase of products that protect your practice’s inventory investment.

Contact Lens Vendor Policies on Returning Unopened Boxes

Agreements with contact lens vendors are typically one-sided deals in which the company says it will supply you with goods with payment due within a set time frame with penalties for late payments. Since the deal is one-sided after the purchase agreement is signed, find out before signing if you will get any of your money back for returning unopened boxes of contact lenses. The ideal is to arrange an agreement with your vendor to at least give you a percentage of your money back after returning unopened boxes, but most vendors will not do this.

Resulting Practice Policy: Since my contact lens vendors will not reimburse the money I spent to order contact lenses for a patient should the patient decide they don’t like the contacts and want to return them, I rarely take back contact lenses. To protect my patients from losing money or getting stuck with contact lenses they aren’t satisfied with, I alert them to our policy and strongly advise them to buy contact lenses in small increments (i.e. a few months at a time). Many practices, if not most, encourage patients to buy an annual supply, which is financially beneficial to a practice–provided the patient doesn’t need to return many boxes that the practice (or the patient) will end up losing money on. If your practice decides to encourage patients to purchase annual supplies, try making an agreement with your vendor that in exchange for selling annual supplies of their product the vendor will offer you financial protection on returning unopened boxes. Since this kind of agreement would be akin to a volume-based discount, it might be worth a try.

Your Frame Vendors’ Warranty Policy

Most frame companies offer warranty on frames only for what is known as “manufacturer’s defect,” which refers to a frame that breaks through no fault of the patient. A patient who buys a frame and within two weeks the bridge or one of the temples spontaneously breaks off, would be considered a case of manufacturer defect. Each vendor also may have varying policies on length of time you can return defective frames to take advantage of the warranty. After you find out about each frame vendor’s warranty policy, find out if your practice will be charged an additional cost for mailing back the damaged frames and then yet another mailing fee for sending the replacement frames.

Resulting Practice Policy: Like your contact lens inventory, you don’t want to get stuck absorbing the cost of products returned by patients, so only offer patients warranties that reflect what your vendors are offering you. If most of your vendors strictly only accept returns and replacements of products with manufacturer defects, let patients know at the time they make their purchase the strict terms under which product can be returned. Also be sure to let patients know of the time frame of the warranty for accepting returns and providing replacements. Most vendors do not offer a time-unlimited policy for even taking back frames with a manufacturer’s defect. You can protect yourself and help your patients by printing out your product return policy on hand-outs and including the policy on your web site. Also have your optician verbally go over the policy with patients when they order their eyeglasses.

Your Frame Vendors’ Payment Policy and Restocking Fees

Like your contact lens vendors, your frame vendors stipulate time frames within which you must pay for the products you order from them and the fees you will have to pay if you are late with your payments. This is one of the few areas of negotiation you may have with a vendor. If you order a high volume of frames from a vendor, you may have leverage to negotiate a payment schedule that better suits your practice. You also should ask the vendor about how much–if anything–they charge to restock sold or returned merchandise. In addition to the cost of new product, your practice may find itself owing money for restocking fees.

Resulting Practice Policy: Be sure your pricing of frames reflects added costs like restocking charges. Practice owners often only calculate the necessary markup of frame merchandise based on how much they paid the vendor for the inventory. But other charges like restocking fees can cut into your revenues if you haven’t taken them into consideration when setting your merchandise prices.

Inspect Shipments of Product

As soon as product arrives to your office–before it is signed for–inspect the box to ensure it isn’t damaged with dents or tears. If the box is damaged you can refuse to accept it from the shipper and easily return it to the vendor as potentially damaged product. Once the box has been signed for and opened, you will have a harder time returning it. If you haven’t signed for it yet, the shipper is the one held responsible; once you open it, it is up to you to make the case to your supplier. Also, check the receiver and sender addresses on each box. It is common for practices to receive products intended for another office. Checking the addresses on the box is an easy way to determine right off the bat if the box was sent to you in error. Once the box is opened, such as a box of frames, have staff check carefully that the products are exactly what was ordered.

Resulting Practice Policy: Train staff so it becomes a reflexive protocol to inspect boxes, addresses and products carefully each time a package from a vendor arrives at the office.

Beware of Subcontractors and Building Inspections

When you sign an agreement with a contractor to renovate or repair your office, be aware that many, if not most, of these contractors employee subcontractors who take care of specialty areas such as electrical wiring, painting and flooring. Ask your contractor about the payments you will owe these subcontractors and find out who these subcontractors are. In addition to ensuring that your contractor is bonded, it is a good idea to have bonded subcontractors working on your practice. Don’t forget that if a subcontractor is not paid by your contractor, he may have a lien against you for monies due. Note that your office renovations may require permits by your local building inspector. Have needed paperwork, which your contractor should provide you with, in order, along with any needed permits, and have your contractor on site during the inspection to address questions from the inspector. To ensure you are happy with the result of your contractor’s work, don’t turn your back on the project. Check in on the progress of the work as often as possible to make sure what is being created aligns with the plans you and the contractor agreed on. Once the work is complete, you may be charged for it to be redone if a mistake was made.

Resulting Practice Policy: Use contractors who are bonded, and diligently find out about each of the subcontractors who will be used for the job. Then ask in an itemized fashion about how much you will owe each of these subcontractors on top of what you owe the contractor (or if the total bid includes the subcontractors). Have a process in place to make sure everything–from permits to paperwork and having your contractor on site–is in order before the city’s building inspector arrives. Make it your own personal policy as practice owner to never turn your back on construction jobs in your office.Take responsibility for monitoring the progress of the work and ensuring what you end up with is exactly what you and the contractor agreed on.

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Pamela Miller, OD, FAAO, JD, DPNAP,has a solo optometric practice in Highland, Calif. She is an attorney at law, holds a therapeutic license, is California State Board-certified and glaucoma-certified to prescribe eye medications, and offers comprehensive vision care, contact lenses, visual therapy and low vision services. To contact her: drpam@omnivision.com

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