This is the fifth post in a six-part series sharing common-sense strategies that have worked for other companies looking to get out of their under-performing rental contracts. Read our first post, and follow along with our series: Understanding the Agreement, Understanding Your Liabilities, and Managing Garment Inspection and Collection, to learn more about each step. Final post coming soon!
You’ve collected, counted, and inspected the rental garments in your company’s system, and returned them to your rental provider.
Next, your provider will do their own audit, issuing a final buy-out invoice for every unreturned or damaged/abused garment.
Expect some sticker shock; your provider will not be happy you are leaving and will not likely make the effort to carefully sift through the hundreds or thousands of garments you’ve returned to ensure the invoice is accurate. After all, it’s in their interest to charge the highest final amount possible.
Program managers who have been through this process all offer the same advice — do not pay the invoice at face value!
Experience has shown that, with some analysis and attention to detail, your company will be able to challenge some of the charges and negotiate a significantly reduced buy-out amount that is both fair and reasonable. Generally, there are two distinct components to verifying and auditing the buy-out invoice: (1) formatting the invoice so it can be electronically analyzed, and (2) performing the analysis.
- Electronic Invoice Format
Most rental laundry program buy-out invoices are provided in a printed format, and may be hundreds of pages long. They are generally expected to include (a) employee name, (b) the garment serial number (or route number/locker number) of all items that were not returned and any garments that were determined, through the provider’s inspection, to be damaged or abused, and (c) the fee associated with the deficiency.
To compare this invoice with the data obtained in your own collection audit, this invoice must be converted to digital format. If the provider will provide this data digitally, there is no cost to convert. If not, the data must either be converted by hand or via scan-to-database software programs that may be available for sale in the market.
The importance of requiring your provider to provide a copy of the buy-out invoice and/or a breakdown of the supplier’s evaluation in an Excel format cannot be overstated.
This will allow you to work with the data, comparing it your own audit (click here for details) completed as part of the garment collection process – and at no cost to you.
Rental laundry suppliers will not be eager to provide this information in a user-friendly format. After all, the closer you are able to examine the invoice, the less likely you are to pay the full amount they’re charging.
Be clear that your company will not issue any payment –until you receive the information you need in Excel format. Or, alternatively, inform the supplier that you will be expecting credit against the invoice for charges you incur to convert the data yourself.
- Performing the Analysis
Once you have the supplier’s evaluation data in a workable format, it’s time to get to work verifying the charges against your true liabilities (check out our post for a refresher). Here are some important steps to take as you review the invoice data:
- Confirm that the invoice matches the agreed upon prices and terms.
- Confirm that all employees that are on the invoice are still employed.
- Do you have access to historical invoices, either from your archives or via supplier reprint? Convert this data to Excel format and use it to mine for rental charges accrued for terminated or retired employees through the rental period, which should have been long-since discontinued. Errors like these can be established as credits against any lost items that are not returned.
- Are there ancillary items charged on the invoice which are not on the contract (outerwear, restroom supplies, floor mats, towels, etc.)? You may not be liable to pay for items that are not part of your contract.
- Damaged/abused garments:
- How do garments invoiced as damaged/abused match up to your own evaluation? If you, or a designated company representative, were present for the supplier’s pickup of returned garments, do the totals for damaged garments on the invoice match the number of garments the supplier flagged as damaged during their initial review?
- Require the rental laundry provider to deliver all items invoiced as damaged or abused back to your company in clean condition for further review.
- Others who have gone through this process have found that several garments originally charged as damaged/abused, were able to pass the standard for acceptable (not damaged) merchandise after cleaning.
- If the provider can’t produce a garment they considered damaged, have the invoice credited for that garment.
- Compare damages/abuse to the supplier’s grading criteria (remember: requesting a copy of this criteria is an important step to take early in the process).
- If they are charging you for a damaged garment they must return that garment to you to keep since you are paying for it. Experience has shown that some suppliers will attempt to bill for damaged garments but clean them up enough to put back in their inventory for hard-wear accounts.
- Lost garments:
- Do the supplier’s totals match the totals from your own audit?
- Make sure that 100% of returned garments were credited on the invoice.
- Use your audit to verify or correct the supplier’s total, citing specific data from your audit.
- Compare the supplier’s records for lost garments to your own employee database for potential duplicates.
- If there are unreturned/lost garments, make certain that the vendor can prove your company – and which employee – lost them. This is a great example of why, as we saw in a previous post, it is so important to require the route driver count garments as they are checking them in and out for cleaning each week – especially in the weeks leading up to the final pick up.
- Make the vendor prove that the employee lost the garments (have vendor show the pickup and delivery) before the accepting the charge.
- If each garment was not being accounted for during each on-site pick-up and again at time of delivery, such “lost” garment fees should be negotiated and not simply accepted as initially provided/proposed by the supplier.
- Pay special attention to the length of time lost or damaged garments were in service. Experience has shown that rental laundry companies almost never charge a depreciated amount for a lost or damaged garment – regardless of how used a garment was when first put into service within your program, or how long it was in use. This is an important point of negotiation. Look closely at:
- The age in-service for all garments categorized as damaged and abused. This establishes if these garments should have been categorized as worn-out and previously replaced at no-charge as part of the service agreement. Further, it is reasonable to negotiate a pro-rated amount – rather than a “replacement” charge at near or higher than full retail – for a garment that has been in service for several months versus a new garment.
- The original condition (when they were placed in service) for any garments invoiced as damaged or abused. If a garment was used when placed in service, it should not be then re-invoiced as damaged or abused.
Careful accounting for all of this information will arm you for the final negotiation – we’ll take a look at this last step in our next post. Stay tuned!