It is getting a bit repetitive with all the various postings about the pandemic’s effect on accelerated digital financial processes—most directly being AP and AR operations—but this brief article considers an interesting dynamic that adds to the volatile circumstances.
While most of the recent discussion (if you want to call it that) surrounding the U.S. Postal Service has been political conspiracy theory in nature, there is no doubt that the independent agency is in dire financial straits. The business model is outdated, and personnel costs have for many years exceeded the revenue generating capacity of the agency during a societal paradigm shift away from paper.
The agency had about 600,000 employees in 2019 and generated roughly $18 billion in revenue. FedEx had 400,000 employees in 2019 and about $70 billion in revenue. You get the picture.
‘The U.S. Postal Service (USPS) has issued a stark warning to its staff and customers as it continues to look for ways to cut costs and ultimately claw its way out of the financial crisis. Candidly admitting that significant delivery delays should be expected in the future — and some mail even left behind in mailrooms and processing and distribution centers — implies this warning will be felt by almost every person and every business across the country. And, as annual B2B payments account for $25 trillion in the United States, roughly 42% of which are still made by paper check, this includes the businesses that still rely on its services for cash flow in the form of paper checks sent by mail.’
We can go back to several of Mercator Advisory Group’s member research pieces to illustrate the power of effective working capital management. Two of the keys are DPO and DSO, which directly tie into scalable and efficient cash cycle systems and processes. Late payments can kill a business, especially smaller ones who are the most vulnerable to unpredictable and extended cash flows.
One only has to look at the number of already closed and looming closures of small businesses in the U.S. to see this. So the service cutbacks add to the challenges for companies reliant upon manual financial operations.
‘With studies showing that one-third of businesses say the biggest impact on cash flow is getting paid by clients on time, news of USPS’ cutbacks present a far greater challenge to B2B. Organizations that already struggling to get paid during these uncertain times could experience significant hits to their days sales outstanding (DSO) if they continue to rely so heavily on the USPS. In ordinary times, lagging DSO may be less of an imminent threat. But, in today’s landscape, predictable and timely cash flow is more imperative than ever. Businesses face another risk in seeing mail get left behind in workrooms or stuck in processing and distribution centers as USPS continues to cut costs. But, what’s also compounding these challenges is the additional costs businesses incur because of delayed mail. Since March, businesses accepting paper checks have seen a 34% increase in float cost because of USPS mail delays, according to Billtrust data.’
The article goes on the discuss various things around digital payments and customer experience (CX) that can and should be priorities for SMEs, especially going forward.
‘In light of this, how businesses embrace technology and prioritize the customer experience is more important than ever before. From offering customers more ways to pay invoices electronically and turning to artificial intelligence and machine learning to make less risky credit decisions, each step of the order-to-cash journey is relying on technology with an increased sense of urgency …So, while postal workers continue to navigate their own uncertain futures through snow, rain or sleet, now is the time to prepare for a future that relies less on analog transactions and more on digital transformation that will far outlast a global pandemic.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
