Treasury Management: Details on the Recent USPS Change

November 18, 2021

The United States Postal Service (USPS) made a historic service level change, effective October 1, 2021, that will alter the First Class Mail delivery standard to 5-7 days, from 3-5 business days. This change is a part of a greater business plan to save them $160 million dollars while continuing to be an integral part of our culture, supporting mail delivery for remittance payments, invoices, direct mail, packages and personal letters. This cost savings plan is specific to the transportation of mail by ground freight versus the heavy reliance on air freight today. It remains to be seen if this change will heighten the demise of check payments sent through the mail, which have continued to be a favored payment method for business to business payments, accounting for approximately 50% of all payment methods, according to the most recent Association of Financial Professionals survey.

Check Payments by Mail details

Check payments, both commercial and consumer, have been on a declining trajectory in recent years, averaging 4-5% year-over-year for commercial payments and 10-12% year over year for consumer payments – especially as businesses and individuals increasingly opt for electronic payment channels like Same Day Automated Clearing House “ACH”, Card, and Online. This migration from paper to electronic has exacerbated the decline of check payment volumes processed by the USPS. Remittance mail has traditionally been given a priority designation by the USPS, when aligned with a designated lockbox in either a unique zip code or caller box service. Lockbox designated addresses are given a priority on mail sorting equipment and delivery, which has ensured the expedited availability of these payments, over all other First Class Mail, allowing banks or lockbox providers to process those payments rapidly.

This USPS service level change has the potential to increase the time a check payment is in the mail, historically called “Mail Float”, or the number of days a check is “IN THE MAIL”. The longer the mail float, the greater the impact to your days’ sales outstanding “DSO” and the more likely you could miss out on preferred credit term discounts and potentially incurring late fees for missing payment due dates. The ubiquitous tracking number, we have all gotten accustomed to tracking package deliveries, does not exist with the First Class Mail service.

Talk to your Bank today!

At risk is your payment and receivable effectiveness and your ability to time your payment delivery accurately. Commercial customers should consider changing how they pay. You can alter your payables landscape to ensure a positive business partnership with buyers and sellers of services. As a buyer of services, you want to take advantage of favorable credit terms and preserve your working capital as long as you can. Same Day ACH payments can be sent to your business partner on the exact date you need, to maximize those savings, no guessing, no timing, no uncertainty. The inclusion of invoice payment data in those ACH payment addenda records will help clear your open receivables and meet your payment posting deadline. As a seller of goods and services, offering your customers clear ACH payment instructions when you disclose your credit policy and or invoice the customer, are critical to drive those payments through this secure and lower cost channel.

Avoid the inevitable guessing game of First Class Mail delivery and the response of “my check is in the mail” as check payments approach the twilight of their payment method dominance. Contact your Treasury Management Specialist at First Western Trust Bank for details on faster payment options to avoid languishing check payment issues going forward.