Lockbox Banking: What Is It and How Is It Used for Payments?

However, you may be able to save even more time, depending on the type of accounting software you use. Many banks can provide a delimited report that can be imported directly into some accounting software systems. If you are fortunate enough to have compatible software, then the task of posting payments may take a few moments, even if the list of payments reaches into the hundreds. While lockbox pricing generally includes similarly structured fees, these costs may vary depending on the lockbox service provider your business works with and other variables. Lockbox payments, also referred to as remittances, are directed to the designated mailing address or PO box where banks can withdraw them on a daily or weekly basis or multiple times a day.

Lockbox services are sometimes called “remittance services” or “remittance processing”. The scanned image goes straight to the accounting department, and all the accountants have to do is match and apply the receipt to the customer’s account, which boosts your processing time by quite a bit. Given all the disadvantages related to the traditional method of lockbox accounting systems, it’s clear that the lockbox model needs to change in pace with AR technology. Luckily, businesses can enlist the help of lockbox solutions to ease this stress by managing payments in a more simplified and secure fashion. Get a free cost-comparison of your current payment processing costs vs. EBizCharge here.

Bank Lockbox Services: Benefits, Costs and More

Lockbox banking is transaction-oriented and aimed at optimizing financial operations. Meanwhile, a safety deposit box is primarily for physical storage purposes and not necessarily meant for daily operations. Traditional lockbox services can yield a variety of benefits for businesses that receive a lot of mail-in payments, enabling them to improve their workflow and accounts receivable operations. Benefits of lockbox banking include easier reconciliation, reduced AR workload and better data security.

• Businesses that receive payments through alternative methods such as online platforms or mobile apps may need additional processes to integrate those payments with lockbox services.
• Lockbox banking is a service provided by banks to help businesses streamline their accounts receivable process.
• The company had to automate the cash application process in order to scale quickly enough to meet increased demand.
• Businesses should carefully assess these costs to determine if the benefits outweigh the expenses.
• Some lockbox processors offer on-line access to digital images of remittance checks and documents.

For healthier cash flow, more and more businesses are looking to customer payment processing alternatives. And they need something more than the paper-check-focused bank lockbox service. Many companies use lockbox services, as it can seriously ease the difficulty of payment reconciliation. But just the same, businesses that use this option are often looking for ways to optimize its interface with accounts receivable. A lockbox is a safe holding location essentially rented by businesses to initiate the process of B2B payments. A safety deposit box and lockbox banking are two separate financial services with different uses.

Should my business use a lockbox service?

Check out our complete guide to cash application to learn more about how automation can help you transform your AR operations and make check processing even easier. This was the problem a company in the healthcare sector confronted when it saw the size of its check payments triple during the pandemic as demand for its service surged. A single check for $200,000 might arrive with more than 60 pages of remittance, which the bank running the company’s lockbox service would include in its data file for the company. Ultimately, the electronic lockbox will automatically scan and match invoices, reconcile payments with bank statements, and mark invoices as paid in your ERP.

The bank opens the incoming mail, deposits all received funds in the company’s bank account, and scans the payments and any remittance information. 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 receivable. It’s no surprise, considering that 73% of businesses reported transitioning their B2B payments from paper checks to electronic payments in a 2022 survey from the Association for Financial Professionals (AFP).

How Can Businesses Reconcile Lockbox Transactions?

A lockbox is a bank-operated mailing address or post office (PO) box that a business can use to collect payments from its customers. Maintaining an organized payment collection process can be a difficult task for many businesses, especially when they receive large volumes of payments from their customers. There are several prominent reasons to use cash application automation software to handle your reconciliation process for check payments. Lockbox services are becoming more and more out-of-date, with electronic payments taking over many of the same transactions lockboxes used to be useful for. If you are looking to improve to scale your B2B payment operations but can’t afford to expand your headcount, smart lockboxes are often a great option. They also provide additional security measures for incoming payments and could reduce the likelihood of occupational fraud.

Therefore, using lockbox banking may reduce lost, stole, or misappropriated funds. Today, online payment methods are necessary for most businesses and industries to successfully operate. Many banks have caught on to this and transformed the lockbox experience to offer digital/electronic lockbox payments.

Lockbox Banking: Definition, How It Works, Risks, and Cost

As with most payment processing services, there are both pros and cons to lockbox banking. It provides companies with a very efficient way of depositing customer payments. This is especially beneficial if a company is unable to deposit checks on a timely basis or if it is constantly receiving customer payments through the mail. For businesses that receive a large volume of payments or large-denomination checks accompanied by remittance documents, a lockbox arrangement can streamline collections and payment processing.

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. In this manner, companies often turn to lockbox banking to reduce their days receivables outstanding to ensure checks are deposited as fast as possible. Though both are meant to provide consumer protection, they are vastly different that don’t necessary overlap in functionality. Lockbox banking focuses on facilitating payment processing and improving cash flow for businesses, while a safety deposit box serves as a secure storage solution.

This article explores how lockbox banking works and details ways to optimize its function for your company. Those are all benefits to consider when thinking through a lockbox service, but there are a few cons to be aware of. If you’re a national distributor where over 60% of your payments are from checks, then a lockbox system could be a fantastic asset.

Using blockchain and cloud technology, we pioneered Payments-as-a-Service to digitize and automate your entire cash lifecycle. Our software makes it possible to digitize receivables, automate processing, reduce time-to-cash, eliminate transaction fees, and enable new revenue. Once a bank receives a lockbox payment on behalf of a business, a bank representative will collect the total sums of money dropped off on a daily (or more frequent) basis from the box. Each payment and any remittance info that has been received is set to process. Electronic lockboxes can streamline receivable systems, boost payment collection, and improve cash flow. Since lockbox payment processing can be time-consuming for banks, they typically charge for their time as well.

For example, a company in Boston may elect to have lockboxes in Chicago, Los Angeles, Houston, and Miami, in order to reduce the mail float for payments made from customers located near these cities. Lockbox banking also enhances payment security by minimizing the handling of physical checks and reducing the risk of loss or theft during the payment collection process. Banks have robust security measures in place to protect payment information and funds.

The bottom line on lockbox services

Some lockbox processors offer on-line access to digital images of remittance checks and documents. The costs of performing these processes internally should be weighed against the costs and benefits of outsourcing to a lockbox processor. Particular attention should be paid to any delays in depositing funds or posting of receivables. Most lockbox processors guarantee that payments received are deposited into the organization’s bank account the same day they are received. This can include ACH, eChecks, credit cards, debit cards, mobile payments, bank-to-bank transfers, as well as cash and checks.

Governments should analyze the efficiency and cost/benefit of using payment consolidation services to expedite the processing of on-line payments processed through the customer’s financial institution. Governments should also consider the benefits of remote deposit capture compared to the benefits of lockboxes. Before smart lockboxes, anyone who processes 60% or more of their customer payments with paper checks would benefit from a traditional lockbox. Lockbox services have become a mature banking service and most areas typically have multiple banks and companies competing for lockbox processing accounts. Governments seeking a lockbox processor should investigate the efficiency models of local utilities and cable television firms process their payments. In areas that are not serviced, governments should evaluate the use of regional lockbox processors.

Merchants can incorporate lockbox payments into their infrastructure to encourage faster transactions with their customers. Some banks will also allow businesses to set up a custom bank lockbox if their accounts receivable needs require a unique solution outside the two above. Some banks may also charge additional fees, such as a setup fee, in addition to their monthly billing. This monthly account can be charged either as a flat fee or on a transaction basis. A lockbox system is an excellent way to reduce mail float for a larger company that has a national or international customer base. It is rarely necessary for a smaller company with a local customer base to use more than a single lockbox at a local bank, since any reduction in mail float is more than offset by the related bank fees.