Manufacturers reassess terms

Friday, August 30, 2013

YARMOUTH, Maine – With three high-profile HME providers now moving through the bankruptcy process, should it come as a surprise that manufacturers are trying to protect themselves by tightening their payment terms?

Providers who responded to a recent HME NewsPoll say the days of 90-day payment terms are long gone. Instead, they say they’re lucky to get 60 days and, in some cases, they’re getting 45 days or less.

Manufacturers declined to provide specific payment terms to HME News—“We haven’t taken a hard line,” said one; “These are unique situations,” said another.

“Ninety days is kind of stretching it,” said Doug Francis, a principal and co-founder at Drive Medical. “I think, on average, we’re somewhere under 60 days.”

When Landauer Metropolitan Inc. (LMI) filed for bankruptcy in August, it listed debts of $5.59 million to ResMed, Invacare Supply Group, Respironics and Invacare. Rotech owes $22.7 million to ResMed, Respironics and Invacare. The Scooter Store owes $25.4 million to Pride Mobility Products and Shoprider.

While steep reimbursement cuts under competitive bidding have pushed many providers to seek out extended payment terms (not to mention higher credit limits), Francis says Drive has “other solutions” to help. The manufacturer, for example, encourages providers to supplement existing business with accessories reimbursed in the first month.

“When someone is asking us for extended terms, they’re really saying, ‘We have cash flow problems,’” he said. “So we take a much more invested approach. If you only address one issue—payment terms—you’re really not helping them to improve their business.”

In determining payment terms and credit limits, manufacturers are putting both contract and non-contract suppliers under a microscope, says John Wright of Shoprider Mobility Products.

“I don’t know how more kindly to say this, but some providers had cash-flow problems when they were making money,” said Wright, senior vice president of sales and marketing. “Now they have 45% less money—their profitability is down to the bone.”

At the end of the day, manufacturers are revamping their businesses, just like providers, and that means changes, says Andrew Pyrih of Pride Mobility Products.

“As providers’ businesses continue evolving based on the legislative and regulatory changes of recent years, Pride and Quantum are, likewise, evolving our business model,” said Pyrih, senior vice president, domestic sales. “We continue to transform our practices to be as flexible as possible.”