Upcoming Changes at the U.S. Postal Service May Impact Your Bottom Line
The U.S. Postal Service recently raised the cost of a first class stamp by one cent for first class mail. But that was just one of many changes the Postal Service plans to introduce this year. Recent headlines have heralded the drastic measures the U.S. Postal Service plans to take in 2012 in their efforts to trim their expenses and streamline their operations. Among the pending changes, the U.S. Postal Service will be:
- Closing 223 — nearly half — of its 463 processing facilities,
- Closing 3,653 post office locations,
- Reducing its workforce by 28,000,
- Increasing postage to 50 cents by 2017,
- Eliminating next-day delivery of first class mail, and
- Possibly moving to a five-day mail delivery system.
What This Could Mean for Your Company
The impact of these changes, while potentially positive for the U.S. Postal Service, could have the opposite effect for corporations. With the reduction in locations and mail carriers, invoices may take one to two days longer to reach your customers, while, simultaneously, customer payments will also take longer to collect. The result: an increase on Days Sales Outstanding (DSO) — and a potential increase in your company’s working capital. Specifically, the receivables cycle and DSO may increase by two to four days, while the volume of delinquent customer payments may also increase. Current estimates of the financial impact of these changes on U.S. businesses are that the slower collections could cost large corporations up to $100 million in working capital annually.1
In addition, other potential side effects for corporations may include:
- An increase in customer late fees charged,
- Increased call volume to customer service, and
- Decreased customer satisfaction levels.
Steps You Can Take Now to Lessen the Impact
Two major objectives to help mitigate the financial impact of these U.S. Postal Service changes are to reduce your paper float and migrate to e-payments. To help achieve these objectives, consider:
- Quantifying the impact on your bottom line. Benchmarking can help you assess the potential impact on your company and understand the full scope of these pending U.S. Postal Service changes. For example, compare U.S. Postal Service closure site locations and delivery changes to the location of your current lockbox facility and to the footprint of your clients. Then estimate the increase in collection time. Finally, determine the working capital impact of an extension to the receivables cycle by analyzing the value of your annual U.S. check volume.
- Embracing innovative electronic strategies and solutions. Today’s technology offers corporations many options that can help reduce paper float, while also reducing costs. J.P. Morgan Treasury Services, for example, offers a variety of sophisticated products that might benefit your company. One such product is Virtual Remit. This desktop scanner allows you to scan checks misdirected to your office, and clear them electronically as if they had been received into a lockbox. This not only helps eliminate courier package costs, it can reduce DSO from two to five days since you will no longer have to forward the checks to your processing facility. Another innovative product, Image Direct Deposit, which has an ACH conversion option, provides an end-to-end processing solution for checks captured via a desktop scanner or mobile device; it can help reduce DSO by about five days and also help reduce clearing costs.
- Encouraging your customers to make payments electronically. Communicate to your customers the benefits of e-payments, including reduced risk of fraud and increased efficiency. Effective customer communication programs have been known to help increase electronic receipts by as much as 15 percent. You may also want to consider increasing electronic adoption further by incentivizing your customers through negotiating payment terms.
- Reassessing Your Receivables Strategy. In light of these pending changes, you may want to identify the appropriate mix of paper and electronic services, and decide which payment options (credit cards, ACH or wire transfers) are right for your company. Whichever you choose, make sure you have the best tools available to support the transition to electronic payments.
- Preparing to receive electronic payments. Have a team and a process in place to talk to your customers about an electronic payment program and be sure they can fully answer any customer questions. And make sure you have the best and most up-to-date tools in place to support a transition to electronic payments.
It's important that your company is ready to deal with the changing realities of today’s U. S. Postal Service and the impact it will have on your working capital, cost structure and customer satisfaction levels.
For More Information
To find out how to mitigate the impact the pending changes may have on your organization’s bottom line, contact your J.P. Morgan representative.
1REL Consulting, 2011