What The USPS Slowdown Could Really Cost Your Organization

October 7, 2021

4 min read

Summary

An extra two days for mail to get delivered may not seem like a minor inconvenience, but if it's your payments that are being delayed, it could soon get expensive.

    You probably saw that the USPS just started slowing down mail delivery, thanks to some “cost-cutting reforms” that the Postmaster General has initiated. First class mail, which typically arrived at its destination in 1-3 days will now take up to five days, as there will be less use of aircraft for mail transportation. For most of us that’s really just a bit of an inconvenience, as we’ll need to remember to mail Aunt Mildred’s birthday card a few days earlier, in order to stay on her good side. For organizations that continue to rely on mailing physical checks out to their vendors, it could present considerable challenges.

    First, it will give two days’ fewer invoice processing time in order to benefit from vendors’ early payment discounts. Early payment discounts are one of the most effective ways for finance teams to optimize their use of cash, as a typical 2/10 net 30 term can yield the equivalent of a 36% interest rate. When the amount of time to process an invoice to ensure you benefit from this drops from seven days to five, it both causes significant stress in the AP team, but also puts the discount at serious risk.

    Second, it will leave a greater window of uncertainty for short term cash flow management, by increasing the potential window of a check being deposited by a further 40 percent (from 1-3 days to 1-5 days). As a result of these two factors, whether an organization is cash-rich and leverages early payment discounts, or in a cash crunch and needs to tightly manage outflows, the impact of the USPS slowdown could be nontrivial on a finance team.

    Third, slow mail can lead to late fees being imposed on invoices which aren’t paid at their due date. If a company is both manually processing invoices and mailing paper checks, a cycle time of 30 days is common. A business will typically impose interest of about 10% per year on overdue invoices. While this may only be a few dollars if a single invoice is a few days late, if a common occurrence it could lead to significant unnecessary costs that the organization has to incur - a major own goal for any finance team. Frequent late payments could also cause friction with suppliers, which could have have long term impacts in areas such as price negotiations.

    When the pandemic led to everybody working from home in March last year, we saw an immediate move from many organizations’ finance teams to shift paper-based processes to the cloud. It simply wasn’t feasible to efficiently process invoice or expense approvals otherwise. It was what is often described as a “compelling event” - while everybody knew that going digital was the best way forward, it’d never quite bubbled up to the top of the priority list.

    That makes me wonder if the USPS slowdown will be a similarly compelling event for finally shifting vendor payments from checks to electronic solutions such as ACH or cards. Even if your organization isn’t in one of the two categories I mentioned above, and just makes check-based payments within the standard 30-day window, that doesn’t mean you shouldn’t take action.

    Going electronic can deliver huge benefits for the AP team in terms of spend optimization. Not only does it avoid the need for checks to be printed and mailed (with the associated costs), but it also gives far better visibility into the payment process and improves team efficiency. This increased visibility and speed of payments can also help strengthen supplier relationships. Compliance is also improved by avoiding duplicate or fraudulent checks.

    And if none of that is convincing, consider that moving spend to a corporate card can lead to cash back rebates. No doubt your CFO would give that the … stamp of approval.

    If you want to find out more about Emburse’s AP automation and electronic payments capabilities, drop us a line to set up a demo.