Understanding Contracts

Contracts and agreements have been a part of the sales process since time began. Often when we sell something, we also make an agreement to provide a certain product or service in a special way. We might agree to provide a certain level of service, customized paperwork or individualized patient training that is decided upon prior to the agreement’s being finalized. While it may be easy to sell a product, it is way more complicated and painstaking to create an acceptable and workable contract.

Remember, not all agreements are set in writing, nor are they formalized with signatures or with the aid of an attorney (although I would recommend one). They are often sealed by only a handshake, a nod of the head or a few short sentences that refer to one person or company promising something to another.

But if we are going to become expert salespeople, then we must understand the basic concepts of a contract or agreement, regardless of the form in which it is created or delivered. Following is a snapshot of several contract elements you and your sales staff should be aware of as you consider contract options with your clients or referral sources.

• Who will write the contract? Experience has taught me that the person who writes the contract is often the one takes the lead in protecting his own interests. Make all attempts to write the contract as a team, and ensure that each element of the contract is discussed before it reaches the final draft.
• Are you looking at a boilerplate contract? If you are looking at a standard contract used in previous negotiations, be careful. Even though you or the referral source may have used this contact successfully before, new times and a new age may require a total redo of the key elements. For example, your staffing might be different or the territory for providing service may have expanded. You now could be buying products from different manufacturers than those used in a previous contract. Product pricing might have changed and so might your fixed business expenses. While you may want to use the framework from a former contract, never believe that it will be of value more than once.
• What services and products are included in the contract? Make sure you know what is expected of you. Will you be required to carry certain products, provide deliveries on the weekends, offer an ostomy nurse for consultation, etc.? If you are being asked to provide services and products you do not offer, will that be financially possible within the confines of your present operation? If you do add products or services, are you aware of the cost and profits you will incur — and can you afford to do more and make less?
• How frequently will parties named in the agreement meet to evaluate and monitor the success of the contract? Regularly scheduled meetings for all parties involved in the contract should be planned and scheduled at the onset of the negotiation. Some companies that I have worked with found short weekly meetings allowed them to catch problems before they became negative patterns of behavior. Others found that a monthly meeting and weekly conference calls were enough to handle problems before they became costly errors.
• What products and services have been carved out of the contract? Too often, contracts have focused solely on what a home care company is going to do, what the referral source is going to provide and how they will work together — with no clear notation of what will not be included. If there is any chance for disagreement about what services, particular products or documentation is not going to be offered, now is the time to place that in writing. If you will provide certain products or services at an additional fee, this should be noted as well. A comprehensive contract, including an outline of all you will do and not do, should serve you well, especially a week in when you are being asked why you didn’t do something that was supposedly expected of you. The written agreement becomes a clear and easy-to-access reminder of what has been promised by both parties.

• Who will do the billing for the products/services offered, and when will the appropriate party be paid? If there is a billing issue outlined in the contract, you are now working on a serious issue: money. Parties want to know who will do the billing, when the bills will be processed and, even more important, “When will I get paid?” Make sure there is a clear understanding about how all the money is going to be collected and the expected timeline for payment. Unclear arrangements about how money is going to be collected and distributed can make for strained relationships. While people may love your company, your products or the referral source, if there is not cooperation in collecting the required documentation or in making payments to the appropriate party in a timely manner, the death of the contract could be eminent.
• Is there a termination clause within the contract? If the sales contract is not working for either party, how long and how complicated will it be to cancel the agreement? Do you need to send a certified letter 30, 60 or 90 days prior to termination notifying your partners? What will happen to the patients you are presently caring for? There are many details to cover, and it will be important to allow both parties sufficient time to handle all the issues related to severing an agreement and possibly moving on with other partners. Some contracts fail not because of financial issues or the wrong numbers provided in developing the pro forma but simply due to a clash of personalities or business goals and missions. The roots of a poor contract can be complex and often unclear, but what is visually clear to all parties is that it’s not going to work.
• At the end of the contact determine:
  1. Whether all parties would do it again?
  2. Whether the contract in its present form allows you to make enough money to make the contact worthwhile?
  3. What changes would be necessary to make the agreement acceptable to both parties?

In any sales agreement, you will not always receive everything you wanted. Remember, if the agreement is not a good fit for your home care company, you can try to negotiate a better arrangement — but if you must, walk way. I know many companies that should have walked away from contracts that were negotiated and signed for the wrong reasons. I could tell you the names of those companies so you could contact them personally, but they are all no longer in existence. Please don’t add your name to that illustrious list.

Now that I have played lawyer without a license, take time to review your next sales contract with a real attorney. To my many lawyer friends in the health care industry, we may need you now more than ever. No one can afford to enter into an agreement that does not offer the expected results.

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Louis Feuer is president of Dynamic Seminars & Consulting Inc. and the founder and director of the DSC Teleconference Series, a teleconference training program. You can reach him through www.DynamicSeminars.com or at 954/435-8182.