The U.S. Postal Service's recent decision to eliminate next-day delivery of first-class mail could cost typical large U.S. companies up to $100 million each year by making it significantly harder to collect from customers quickly, according to new research from REL Consulting, a division of The Hackett Group, Inc. (NASDAQ: HCKT).
REL, a world-leading consulting firm specializing in working capital management, also offered guidance that companies can use to address the impact of the post office's change.
Last month the U.S. Postal Service 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 REL's latest working capital research. REL also 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 collections 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. This will potentially increase Days Sales Outstanding (DSO) for many companies by up to $100 million annually.According to REL's analysis of collections performance by 1000 of the largest public companies in the U.S., top performers now collect from customers 44 percent faster than typical companies. A typical company (with revenue of about $10 billion) could net $260 million in working capital improvements by optimizing their receivables performance to match top performers in their industry. There are several actions companies can take now to avoid a hit to accounts receivables when the post office makes its change. REL Global Customer to Cash Practice Leader Veronica Heald offers the following guidance:
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