Relaxed mail standards could slow receivables

Healthcare Financial Management, June, 1990 by Brian Hinton

A U.S. Postal Service plan to redefine and relax local and national delivery standards may slow the flow of remittances to lockboxes and receivables departments. With the proposed postal changes, the geographic area covered by next-day and two-day delivery schedules may shrink. Although precise implications remain unknown, the overall message is clear for healthcare financial managers: Receivables may be subject to delay. Corporate cash management groups are challenging the plan. The American Bankers Association also opposed the plan at hearings before the Postal Rate Commission in January 1990. Improving consistency

The plan resulted from research performed last summer by the Postal Service, which conducted focus groups and a series of telephone interviews with business and residential mailers in 12 cities.

The research revealed that mailers value consistency above other service criteria. It also showed that the current set of delivery standards might be more aggressive than even recipients expect. The Postal Service interprets consistency of service- as its ability to meet delivery schedules. For this reason, it feels the best way to improve mailer satisfaction is to relax overly aggressive standards. Each of its 220 'sectional center postal facilities" (those with nationwide distribution responsibilities) has proposed revisions to delivery schedules. Based on these proposals, Postal Service headquarters will create a comprehensive set of standards for the nation. What to expect By June 30, changes will be implemented for local overnight delivery standards. Changes for the remainder of nationwide delivery areas are scheduled to take effect on Sept. 22. Most changes are expected to: * Shrink territories covered by overnight standards; and * Change two-day standards to three days, when airline schedules are not conducive to meeting two-day standards or when volume thresholds are unmet. If these standards are adopted, the net effect win be to expand the areas covered by two- and three-day delivery schedules. Most of the changes probably will be directed at suburban and rural areas. If the bulk of an organization's receivables originate in these areas, the organization could experience appreciable effects on cash flow. Most urban areas, however, are expected to maintain aggressive overnight standards for intra-city deliveries and two-day standards for inter-city mail. Organizations that draw most of their receivables from urban areas should experience only minimal effects. Evaluating effects At this time, the full effect of the proposed changes cannot be determined. Various study models will be used by consultants nationwide to track mail times. Other studies will be conducted by individual organizations to gauge the effects of mail times on their funds availability. Later studies likely will draw and expand on earlier analyses. One ongoing study, slated to be published in February 1991, simulates a corporate mailing pattern to determine mail times. Mail is sent from 175 locations to nearly 100 lockboxes, and data is accumulated and blended over a two-year survey period. Once available, mail time data may have a telling effect on institutional cash flows. In fact, it accounts for more than 75 percent of funds availability. Other factors include bank deposit schedules (the cut-off hours at which banks determine deposit posting dates) and availability schedules (how soon banks make deposited funds available for use).

An organization planning to evaluate its funds availability during the second half of this year should not defer those plans. But it may want to get a commitment from its consultant to retain the data and rerun the study during 1991 to evaluate the effect of upcoming postal changes.