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Mail Delivery Change Could Cost a Large Company Up to $100 Million Annually

January 4, 2012

Make proactive collections a priority.—“There’s a lot most companies can do to take a more strategic and proactive approach to collections,” said 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 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 Heald. “This will enable them to set reasonable improvement targets.”

Understand and enforce terms and 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 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, 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, is a world-leading consulting firm dedicated to delivering sustainable cash flow improvement from working capital and across business operations. REL’s tailored solutions balance client trade-offs between working capital, operating costs, service performance and risk. REL’s 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.

Source: REL.

 

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