The U.S. Postal Service got plenty of headlines with its recent announcement that it plans to eliminate Saturday delivery. But for businesses that collect payments via snail mail, the big impact has come from the changes the Postal Service announced early last year, changes that have slowed delivery times.
In January of 2012, the Postal Service said it would eliminate a number of its processing facilities. It also revised its standards for two-day delivery from mail that originates from within roughly a 12-hour transportation range of a processing center to mail from within a six-hour range.
“Those standard changes are the biggest impact corporate America is going to see,” said Lex Litton, a senior vice president at Phoenix-Hecht, a financial services research firm in Research Triangle Park, N.C.
The elimination of Saturday delivery, which is to go into effect in August, shouldn’t have a big effect on business payments processing because the Postal Service will continue to deliver mail to post office boxes on Saturday, Litton said. “Lockbox users and corporations that process their own payments would continue to have access to Saturday delivery unless they have payments delivered to a physical address, and I think that’s quite a rarity for corporations of any size,” he said.
The Post Office will also stop picking up mail from mail boxes on Saturdays. Again, Litton said he sees little impact on businesses, noting that most companies do not send out payments on Saturdays “unless they’re really on the small side.” Consumers may be surprised by how the changes affect payments they mail on Saturdays, though, he said. Currently if a consumer mails a payment Saturday, there’s a good chance that it will arrive Monday, but the changes will likely push delivery back until Wednesday. That will also affect the timing of payments flowing into lockboxes that process retail payments, which he predicts will see volume shift from Monday to Wednesday.
Meanwhile, though, the most recent Phoenix-Hecht survey of remittance processing shows the Postal Service’s previous changes have had a big impact. Last July, the Postal Service implemented the changes in two-day delivery standards and shut down 46 of its processing facilities.
Sixty-eight percent of the respondents to Phoenix-Hecht’s October survey said their delivery times had increased since the previous survey in June, with the increase averaging five hours, or 0.20 mail days. That boosted the average delivery time for all respondents by almost three hours. That is the biggest change in Phoenix-Hecht’s survey results since 1999, Litton said.
The survey shows considerable disparities between regions. “There were locations where we couldn’t tell the June survey from October,” Litton said. “Atlanta, Chicago, Philadelphia, Boston—those locations seemed to be sort of immune from the changes.” But West Coast locations like Los Angeles and San Francisco showed big increases in delivery times, as did Charlotte, N.C., he said, adding that the Postal Service will be looking for ways to mitigate the effects of its changes.
Given the slowdown in delivery, some companies may add lockbox locations, according to Litton. “You may have had companies that have, let’s say, two lockbox locations and are really close to being able to justify a third. Now the not quite becomes justified.”
Since the standard for two-day delivery went from a 12-hour range to a six-hour range, “if you introduce an additional lockbox into your network, you have an additional six-hour radius of two-day delivery,” he said. “As long as you’re getting enough payments from that region, that has a real value to your collection network.”
With interest rates so low, companies may be less concerned that taking longer to get payments into their bank account will lose them float, Litton said. However, “companies are also very sensitive to information float. The longer it takes them to process payments, the longer before they know which bills have been paid,” he said.
Patricia McGinnis, director of the commercial and enterprise payments group at Mercator Advisory Group, a payments research firm in Maynard, Mass., argues that companies remain focused on managing their working capital as efficiently as possible given that banks are still stingy about providing credit. “Getting payments collected and cashed in does matter to most corporations,” she said.
Might slower delivery times be enough to push more companies to switching to electronic payments? McGinnis said quite possibly, and notes that companies are using fewer and fewer checks, with surveys showing paper payments to companies’ major suppliers have fallen below 50%. “What you do see over the last six to eight years is a steady decline in the use of checks and increasing use of electronic payments methods,” she said.
For more on the Postal Service’s recent changes, see Postal Service Tries to Avoid Twinkies' Fate and Postal Service to Shut Plants. For a look at the use of advanced technology in lockboxes, see Advanced Matchmaking.