Will Business Go Postal When Post Office Nixes Next-Day Delivery?
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The U.S. Postal Service’s decision last month to eliminate next-day delivery of first-class mail may cause a cash-flow crunch for small businesses by making it harder for them to collect quickly from their customers, new research shows. But, experts say, there are steps that companies can take to avoid taking a hit to accounts receivable when the post office makes it change.
In December, the post office announced that it would be eliminating next-day delivery of first-class mail, as part of a move to close about half of its nearly 500 mail-processing centers nationwide and eliminate 28,000 jobs. Currently, about 40 percent of all first-class mail is delivered the next day.
Typical U.S. companies now take more than five weeks to collect from customers, according to research from REL Consulting, which focuses on developing customized working capital management tools.
REL estimates that more than 60 percent of all invoices are still delivered by mail, so the elimination of next-day first-class mail delivery is likely to add at least two to four days to the collection cycle for many companies — an extra day or two in the mail before the customer gets an invoice, and another day or two when customers mail their checks back.
But there are ways that companies can improve receivables procedures to close that gap, REL said.
Bill More Quickly: "Many companies still bill once a week, or even once a month. This may be simpler, but it's counterproductive. Bills need to go out as quickly as possible," said Veronica Heald, REL's cash practice leader. "One good first step is to consider delivering bills via email. But it's critical that companies confirm delivery, either by phone or using electronic receipts."
Make Proactive Collections a Priority: "There's a lot most companies can do to take a more strategic and proactive approach to collections," Heald said. "Companies should segment their customer base to better understand where collections problems are, and where the best opportunities for improvement lie."
Encourage Electronic Payments: “Organizations should, now more than ever, conduct focused efforts to transition more of their customer payments to electronic methods, such as using an automated clearing house (ACH), wire or debit/credit, starting with those customers accounting for the majority of revenue," Heald said. "ACH payments are a fraction of the cost of checks and ensure faster delivery.”
Enforce Terms and Conditions. "It's surprising how many companies simply don't enforce the existing provisions in their contracts," Heald said. "For example, they may allow their customers to calculate payment due dates from when the invoice is received, while the contract calls for it to be calculated based on the day it is issued."
Reconsider Grace Periods and Discounts: "Grace periods and early discounts can be more carefully tracked to avoid giving customers discounts they haven't earned," Heald said. “Unless customers change their payment-processing strategies to account for the increase in mail float, which is unlikely to happen, payments will be received later than ever, including discount payments.”
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