Cash Management

Mail Crawl

How the U.S. Postal Service&spamp;rsquo;s decision to cut next-day delivery will affect working capital.
David KatzFebruary 1, 2012

The U.S. Postal Service’s December decision to decrease the expected standard delivery time of first-class mail to two-to-three days could have a negative impact on companies’ working capital.

Indeed, the move could cost a U.S. company with $10 billion in revenues up to $100 million in working capital, according to Veronica Heald, a practice leader at REL Consulting, a division of The Hackett Group that focuses on working capital. She estimates that 60% of payments received in the United States are via mailed checks; therefore a slowing of first-class service could create a lag both in the distribution of invoices and the receipt of payments.

Smaller companies in particular may feel the pain. Heald suggests that companies that have yet to embrace e-invoicing explore the option. (The initial administrative burden can be significant, however; a company has to be sure customers’ accounts-payable departments can accept invoices by e-mail or other means, and establish a way to acknowledge payment was received.) Companies should also beware of customers that want to continue receiving paper bills (some companies see it as a way to delay payments because they calculate the due date from the date they receive the bill versus the invoice date; companies should clarify specific payment terms). And consider billing more frequently. “When treasury comes knocking at the end of the month, that’s when everyone rushes to get their invoices out,” says Heald. If there is a silver lining in the prospect of slower mail, it could be that companies will take a fresh look at how to improve a basic, but important, aspect of working capital.