For those of you who may have forgotten, this phrase is part of the creed of the United States Postal Service. Someone asked me recently if I thought that the proposal by the USPS to reduce services such as Saturday delivery could have a negative impact on credit and collection and on DSO. It was a great question, and is one that I have given a lot of thought to and the answer is —- It Depends.
If the majority of your customers pay you by check and those checks represent more than 50% of the amount collected, then reduced service [such as the elimination of Saturday deliveries] could have a negative impact on DSO. If the majority of customer payments are made by check but those payments represent, let’s say 20% of the total amount collected each month [based on the now well known 80/20 rule] then any reduction in services provided by the USPS would have a far less dramatic impact on DSO and collections.
If the majority of your customers pay the majority of the money collected each month by wire transfer or ACH payment, then clearly a reduction in USPS services would have a limited impact on your collections and your collection effectiveness as measured by changes in DSO.
I recommend migrating as many customers as possible, as quickly as possible, away from checks and to electronic payments (Fed wire and ACH). Customers, including many midsized customers, have the ability to generate electronic payments. Some do not do so because they recognize that issuing checks results in mail and process float. However, the efficiencies associated with electronic payments for both the seller and the buyer are so significant that it is something that vendors need to recommend to their midsized customers and should expect to receive as the preferred payment mechanism from their larger customers.
What are your thoughts?
Michael Dennis’ Covering Credit Commentary. Michael’s website is www.coveringcredit.com.
The opinions presented are those of the author. The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors. Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.