REL Consulting: Post Office Changes Could Slow Collections, Cost Large Companies Up to $100 Million Annually

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: 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 Ms. Heald. "One good first step is to consider delivering
bills via e-mail. But it's critical that companies confirm
delivery, either by phone or using electronic receipts. The longer
it takes for an invoice to reach a customer the longer it will be
before the invoice enters the customer payment process." Make
Proactive Collections a Priority - "There's a lot most companies
can do to take a more strategic and proactive approach to
collections," said Ms. Heald. "Companies should segment their
customer base to better understand where collections problems are,
and where the best opportunities for improvement lie. If companies
want to ensure that payments will be timely regardless of mail
impacts they need to be first in line. Collections contacts prior
to the due date of a receivable are key." Encourage Payments via
Electronic Means - 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. ACH payments are a fraction
of the cost of checks and ensure faster delivery, said Ms. Heald.
For some companies, it could be as simple as making sure that
electronic payment remittance information is included on the face
of the invoice. Implement Relevant Performance Indicators -
Companies need to get ahead of the game, and measure float now in
areas like mail, bank clearance, and payment processing," said Ms.
Heald. "This will enable them to set reasonable improvement
targets." Understand and Enforce Terms Conditions of Contracts -
"It's surprising how many companies simply don't enforce the
existing provisions in their contracts," said Ms. Heald. "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," explained Ms. Heald. 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. Adjust the Lock Box
Strategy - Finally, Ms. Heald suggested companies reevaluate their
lock box strategy, and consider changing the mailing address
customers use to send in payment so that lock box distribution
matches customer distribution, potentially cutting mail delivery
time. About REL REL, a division of The Hackett Group, Inc. (NASDAQ:
HCKT), is a world-leading consulting firm dedicated to delivering
sustainable cash flow improvement from working capital and across
business operations. RELs tailored working capital management
solutions balance client trade-offs between working capital,
operating costs, service performance and risk. RELs expertise has
helped clients free up billions of dollars in cash, creating the
financial freedom to fund acquisitions, product development, debt
reduction and share buy-back programs. In-depth process expertise,
analytical rigor and collaborative client relationships enable REL
to deliver an exceptional return on investment in a short
timeframe. REL has delivered work in over 60 countries for Fortune
500 and global Fortune 500 companies. More information onREL
is available: by phone at (770) 225-7300; by e-mail at
info@relconsultancy.com; or on the Web at
www.relconsultancy.com.