Banks provide lockbox banking to businesses as a means of receiving consumer payments. Instead of going to the corporation, client payments received through this service go to a specific post office box. The bank picks up the costs from the box, processes them, and transfers the money straight into the business's bank account.

Using a Lockbox for Banking

Large-denomination checks and remittance papers received by businesses in the form of payments can be processed more efficiently through lockboxes. Using modern lockbox technology, companies may utilize many communication hubs to accept fees and deposits from banks.

Payments from clients are received at a post office box established by a company. A courier service sends deposits and communications to the bank's processing center. Clearing updates are provided to the company's accounts receivable from the scanning and capturing remittance papers. The lockbox data of the company is backed up every night for safekeeping and straightforward access.

Lockbox Banking: What's the Price?

Using lockbox banking services might be expensive. Banks impose a one-time setup cost as well as a monthly maintenance fee. For each transaction, they levy a fee of some sort. Their rating system is sometimes complicated to understand.

Lockbox service departments typically handle tens of thousands of monthly checks and charge for their time. The billed time rapidly adds up. As a result, even if the bank's back office is more efficient than yours, it still relies on labor-intensive manual processes.

Using a Traditional Lockbox Has Its Benefits

Increasing the speed at which mail floats. The time it takes for a check payment to travel from the sender to the recipient is referred to as the "mail float." It is common for the payers to use the term "the check is in the mail" to take advantage of the extra time that email float' provides.

Payors will have more options now. It's possible that the payor does not have enough money to cover the check or that they are holding onto the money in an account to collect interest. A benefit to the payer and a blessing to customers, the additional time necessary for lockbox processing may cost the recipient's earnings in interest and raise their DSO.

There are two ways lockboxes reduce mail float: In the first place, the postal time is likely to be faster than delivering to your company address because you have numerous geographical locations closer to your clients' sites. Second, by allowing bank employees to deposit payments directly into your account, a lockbox helps speed up the payment processing.

Traditional Lockbox Drawbacks

Using lockbox services has several advantages, but it also has several cons. For the most part, legacy technologies like the electronic lockbox don't provide significant improvements in security or speed. In AR, there are several reasons why the old approach is being abandoned:

Costs for lockboxes can run high. The banks get a set monthly price and a recurring annual fee for each safe. In addition, they charge a fee for each payment that is completed. Lockbox applicants often process hundreds of monthly checks, so these processing fees quickly mount up.

Concerns about the security of lockboxes are possible. Banks are forced to hire more employees or outsource lockbox data input since the procedure is still arduous and time-consuming. The information obtained from a lockbox payment contains everything required to create a fake check.

Lockboxes are still a bit sluggish. Using a bank to centralize lockbox payments may be faster than receiving a check in the mail, but lockbox payments are neither digital nor electronic. Because they may reduce the time it takes for a cheque to arrive in the mail, the amount of time saved is insignificant.

Services for Digital Lockboxes

Traditional lockbox accounting systems have several drawbacks. Thus it's evident that the lockbox concept must alter to keep up with AR technology. There are now electronic lockbox systems available that combine the advantages of AR and AP teams.

eChecks, ACH, debit cards, credit cards, and electronic bank transfers are all acceptable means of payment in a digital lockbox service, eliminating the need for traditional paper checks. They are the next logical step in the evolution of physical lockboxes and aim to enhance the speed, security, efficiency, and cost-effectiveness of receivables even further.

Final Words

Companies with a broad consumer base, such as mortgage lenders, might benefit from this service. Customers that make modest payments to utility companies also utilize this service. In addition, a service like this is helpful for businesses with many sites across the country or those with an enormous number of clients in a single or a few remote locations.

Because of the potential for increased prices, this service is not suggested for small businesses with local clientele. Online banking and digital payment have diminished the necessity of lockbox banking, even among more prominent corporations.