How Do Lockbox Services Work

why do companies use a lockbox?

The economic benefit of using a lockbox involves a tradeoff between the freeing up of funds by faster collections against the cost associated with dealing with a recording transactions bank. There are pros can cons when it comes to lockbox banking; while it is convenient, it can also be risky and lead to potential fraud, like counterfeiting.

  • It’s certainly worth considering when comparing different lockbox services.
  • It gives visibility to the company’s cash flow as businesses receive timely information from the bank when they process the payment.
  • As a result, e.g. residual items are created and stored as document line items.
  • This data is needed for importing lockbox files sent by banks.
  • Lockbox services are designed to speed up the collection of your payments while providing timely remittance information.
  • Lockbox systems in rural areas often don’t have the same efficiency as those in metropolitan areas or suburbs because they’re sometimes lacking the same kind of automation.

It reduces the burden on the company of going through the mails, accepting, and receiving payments. Depending on the service level from the bank, daily reports and nightly backups can be applied as needed. Paystand is on a mission to reboot commercial finance and create a more open financial system, starting with B2B payments. Learn the key elements for automating payments within NetSuite to streamline your payments process.

Businesses using lockbox banking can substantially lower their internal processing costs, speed up collections and convert their receivables into cash more quickly. There is no need for businesses to prepare their own bank deposits or maintain accounting records because that is done automatically through lockbox banking. But before starting the blog post it was necessary to give an overview of what the lockbox functionality is all about.

How Much Does A Lockbox At A Bank Cost?

A lockbox system greatly speeds up the time required to deposit checks into a company’s account. Company employees post the payments after they have been deposited based on the receipt report issued from the bank. Each day, the bank takes all the PO Box deposits to its processing center. They also scan a business’ remittance documents so the payment information is securely captured, then they transmit the overall update directly to accounts receivable. All of these records are backed up, securely stored and available for easy access should you need to refer to them later (or, in the event that you’re getting audited and somehow lost your copies). Reducing check fraud isn’t the only benefit of using receivables lockbox. Because invoices go out from the business but payments come in at a bank and are handled directly by bank employees, fraud is more difficult.

Upon receipt, a bank employee collects the payments, deposits them into the company’s account and sends a report of the checks received to the company. Whether or not a company should use a lockbox system depends on whether the advantages of such a system outweigh the disadvantages of collecting payments under this method. Lockbox banking is a service provided by banks to companies for the receipt of payment from customers.

Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes. A lockbox can be utilized in any industry, and you do not need to be a certain size to use the service. We have worked with small companies with less than 100 monthly transactions, all the way up to large manufacturers. Because sensitive information will be held by unknown bank partner employees, there is a risk that personal information will be abused at a higher rate, although the odds of this happening are low. You can also ask your bank partner how they deal with fraud and breaches. If they offer protection or guarantees, that’s a good sign.

The scanned images are posted to a secure website, where the company’s accounting staff can access the images to apply payments to outstanding accounts online bookkeeping receivable. Lockbox Banking is a commercial service offered by the banks to the companies to support the quick receipt of payments from the customers.

why do companies use a lockbox?

Forecast a downward trend with your ROI calculations before using a lockbox service. There are also some other common uses of lockboxes, like property management when collecting rent or healthcare collection. With monthly service fees, per-transaction fees, and other costs particular to the company you work with, having a lockbox isn’t cheap — make sure you are positive of the ROI before signing anything. Those are all benefits to consider when thinking through a lockbox service, but there are a few cons to be aware of. Since the payments are delivered faster, your accounts receivable will be more up-to-date, and you’ll have a more immediate and clear vision of which clients and products are the most profitable. The best lockbox services will sit down and work the math out with you. Look for smart businesses that have a wide variety of case studies on hand.

If you duplicate the check number, the payment advice will already exist, and the system will not allow file processing. If you’re ready to enroll or would like to learn more, simply complete our convenient enrollment form and a member of our Business Solutions team will be in touch to get the process started.

Downsides Of Lockbox Services

In addition, employees will need to be trained on posting payments under the new system, and customers will need to be informed well advance on where to send their payments. Lockboxes seem to work best for companies that receive a relatively low number of large payments from customers.

However, companies who receive a large volume of smaller payments have also successfully used lockboxes when a bank’s lock box system is automated. Different banks also charge differently for the service and when included as part of many services that the bank can offer to a customer, there can be significant discounts.

why do companies use a lockbox?

This record marks the end of the data and includes the total number of records. More accurate direction of funds – Lockbox services help to avoid commingling of funds and allow the proper accounts to be credited quickly and accurately.

Electronic Conversion

Some lockbox processors offer on-line access to digital images of remittance checks and documents. Lockbox services do not directly integrate with payment methods such as cards, ACH, EDI, or newer Internet based digital payment rails such as eCheck. This adds complexity in a receivable process running different systems for different payment methods.

why do companies use a lockbox?

Justin Pritchard, CFP, is a fee-only advisor and an expert on banking. He covers banking basics, checking, saving, loans, and mortgages. He has an MBA from the University of Colorado, and has worked for credit unions and large financial firms, in addition to writing about personal finance for nearly two decades. C) Recognize revenue as the entity satisfies performance obligations. D) Allocate the transaction price to the performance obligations in the contract. Note that it is also in this transaction that you state the procedure and record format as seen previously in the configuration proper. List of checks can be printed out as needed and provided to the banks.


Once payment is received, AR staff perform data entry to record receipt of payment. Next, the check must be deposited into the business’ bank account. Once the check clears, it can be reconciled with the businesses accounts. A lockbox collection system allows companies to quickly process check payments in which customers are instructed to send payments to a specific post office box address that is set up by the company’s bank.

If you don’t have the manpower to process physical checks at the speed you need. If you’re a national distributor where over 60% of your payments are from checks, then a lockbox system could be a fantastic asset. These payments are also known as remittance, which is just another word for a mailed payment. Ship sooner, have happier customers and enjoy more accurate accounting. Box of sorts, and businesses will often have different lockboxes all over the country. Be alert to the possibility of fraud; such as when a customer notifies you that a counterfeit item has been paid on his account.

A Beginners Guide To Lockboxes

This is not necessarily a direct connection where they have direct access to SAP. There are two lockbox file formats as mentioned in the previous process flow. The standard Accounting Periods and Methods BAI or BAI2 will differ depending on the bank file configuration. Payments are processed by the bank and corresponding details are stored in a lockbox file.

List of checks to be processed will be shown and can be corrected as needed. This data transfer can be through EDI, Manual Input, or other means. Paid Invoices are cleared.If payment information is complete, then invoices are cleared.

One more aspect of Lockbox which is very common across all companies, is that – generally multiple company codes utilize the same lockbox account for customer collections. Whereas standard SAP Lockbox functionality allows posting within a single company code per lockbox. To facilitate such intercompany cash application, a user exit must be added to lockbox program RFEBLB20. This ensures an alternate company code is added in the payment advice. This allows matching customers and invoices in alternate company codes. There are many different things your company can do to guard against check fraud, from keeping your check stock secure to promptly reviewing and reconciling your bank statements.

This secure service gives you convenient, around-the-clock access to your business accounts. Frost’s Lockbox Service efficiently handles mailed check and credit card payments, so your back office doesn’t have to. Accelerate check collection, funds availability and delivery of remittance information by outsourcing the processing of mailed payments to Frost. The AFP attributes the rise of check fraud to several factors, including new technologies that make it easier for criminals to commit this type of crime. And despite the growing use of electronic payments, middle-market companies still extensively use checks for business-to-business transactions.

With your local mail service, you might only get one delivery per day. That results in extra “float” time, which refers to how long checks spend in the postal system.

They are able to receive checks and have them automatically deposited and applied to the correct invoice. It also allows companies to be completely digital even if their customers are old school. You can establish lockboxes in several different post offices or cities. A basic rule is that your lockboxes should be set why do companies use a lockbox? up nearest to your customers to reduce the amount of time between your customers’ mailing their payments and the deposit into your bank account. Remote Lockbox Capture– Remote capture capabilities expand the functionality of your lockbox operation, which can assist in adding new customers in any geographic location.

It’s a good idea to compare the cost of using a bank’s lockbox to the interest received by having payments in the company’s account one, two or more days earlier. A study of the time it takes to process payments in-house will help to accurately estimate the money that can be gained from earlier deposits. If your business is small enough that you’re doing your own accounts receivable rather than hiring a professional, there’s going to be a learning curve. You’ll have to learn how to use a bank’s online system to download statements in a format that works with your online accounting system. Her other assigned job is to post the collection to customer accounts receivable. This time, put your focus on the reports that the bank gives to Company Cool Inc. These reports can be by form of electronic files that contains all the payments, deposits, and the invoices that were paid against.