Lockbox Payments can help streamline your business’s way of accepting money from clients and allowing it to access the cash. A company creates a P.O. When a company uses a lockbox, it sets up a special P.O.
The Key Takeaways
- A lockbox is an exclusive P.O. Boxes are used to collect payments from customers.
- The bank deposits the money to the business, often multiple times per day.
- Businesses can install multiple lockboxes at different locations.
- There are a few digital lockbox services available.
Lockbox Payment: Definition and Examples
Imagine you get a bill in the mail from your electric company. The bill arrives with a remittance form. Fill out the slip and attach your check. Then, mail it to a local post office.
This post office box is the lockbox of your electric company. This is a P.O. Customers can send their payments to this special box. The bank collects the payments, deposits them, and informs the company of the transaction.
Lockbox Payments: How They Work
One company may use multiple lockboxes, one for each region in the country where it operates. Customers can send their payments to the nearest lockbox, rather than across the country. This reduces the amount of time it takes to mail the payment and allows the company to access its funds faster.
The bank collects the payment, as well as other payments that may arrive, up to multiple times per day. Each remittance check and slip could be scanned by the bank, which would allow your company to get all of the information digitally. The money is deposited. You are notified that the money has been deposited.
Note:
Many lockbox providers offer same-day deposit for their customers. 1
Lockbox payments: A variation
Some banks provide image-based and digitization lockbox services. Image based services scan all the documents sent to your lockbox, so that you can view them online. Images of payments are often available the same day that they arrive at the lockbox.
Optical Character Recognition programs (OCR) “read” all the text and store it electronically. These services automate entry, and give you customer and financial data the same day. You can back up your lockbox data and analyze it in a variety of ways.
Lockbox Payments: Pros and cons
Pros
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- Lockboxes allow customers to pay by cash or check if they don’t have the ability to pay electronically.
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- Payments are collected several times per day.
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- Payments are made in advance to avoid delays caused by USPS.
You can also find out more about Cons
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- Lockboxes are slower than electronic payment methods and less efficient.
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- Security risks can affect them.
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- You or your employees may still need to perform the processing manually.
Pros Explained
- Lockboxes are a simple and easy way to receive payment: Sending a check to a lockbox for payment or deposit is a quick, simple method for customers to send their payment. Payments are delivered quickly and securely, while checks clear for only the cost of a postage stamp. The bank deposits and collects payments more frequently, so the lockbox payment is credited faster to the customer account.
- You can collect payments more than once per day. Instead of the daily visit to your office, mail may be delivered multiple times a day to a lockbox. This gives you more chances to collect payments and deposit into your account.
- Lockbox Payments reduce the “mail float” time, the period between the customer mailing a check and the company receiving it. You can maximize your money by using this method.
Cons explained
- Lockboxes still are less efficient than electronic payment: Although they speed up the processing time, reduce the mail float and allow quicker access to funds there are some drawbacks to lockboxes. While they are faster than accepting checks in the office, they’re slower than other electronic methods of transfer. Payments still have to be sent via mail. Payments must be processed first before they can be credited to the accounts receivable.
- Lockbox payments can pose a risk to your security. Using lockbox payment poses a certain amount of security risk. If your bank uses manual data entry to process lockbox payments, there is a fraud risk. This could be from an unscrupulous clerk, a contractor offshore, or even a customer who writes a fake check. The high volume of check processing leaves a large margin for error.
- Lockbox payments do not automatically link into your accounting software. Staff in the back office must reconcile customer accounts with payments.
