Intellectual Capital

Lockbox in the electronic payments age

The hallmark of a quality lockbox service provider is its willingness to consult with clients to ascertain their needs and customize a service package. And checks aren’t going away as quickly as predicted.

New and emerging business benefits

Lockbox services have been a time- and money-saving workhorse among financial management tools for decades. The high-interest-rate environment that spawned them primarily as a means of accelerating receivables has faded. But thanks to technology advances and competitive market forces, other benefits of lockbox services have come to the fore, making lockbox services more versatile for all users and affordable for smaller enterprises.

One factor giving lockbox services ongoing appeal is the enduring popularity of paper checks. Checks for consumer and business-to-business (B2B) payments are not disappearing as fast as industry experts had predicted. That being the case, companies that rely on internal resources to process checks manually, without the benefit of the latest lockbox technology, might not be making the best use of their accounting department.

Lockbox basics and benefits

Here's how lockbox services work: A bank-managed post office box serves as the entry point for check-based payments and remittance detail, and the lockbox is strategically used at high-volume, centralized mail collection points. That approach typically accelerates receipt of mailed checks by a day or two, depending upon their sources and destinations.

Also, the lockbox provider makes multiple, daily collections and deposits of items into the client's bank account to further reduce float. Received checks can be combined with other payment types, including electronic Automated Clearing House (ACH) and wire transfer payments, to create a single posting-file data stream for matching to open accounts receivable (A/R) invoice files.

Here's a summary of basic lockbox service benefits:

  • Checks are rapidly credited to client accounts and funds availability is accelerated.
  • Internal staff time otherwise consumed by making check deposits is liberated for more productive purposes.
  • The risk of delayed deposits due to an absence of the employee who processes checks is eliminated.
  • The probability of theft or fraud by employees handling checks is reduced to zero.
  • Service Organizational Control 1 (SOC-1) compliance standards and related reviews of lockbox providers ensure strict adherence to rigorous security-maintenance procedures.

Customization and advanced technology

A quality lockbox service provider will work to understand a client's needs and customize a service package according to their specifications. For example, clients who desire heavy front-end sorting and categorization of items should be easily accommodated.

Also, because checks and remittance documents are scanned upon receipt, their images are available for prompt online client viewing. Supplemental data accompanying payments is incorporated into the reporting system, and all transactions are easily searchable online by the bank client. That facilitates exception processing based on client business rules and prevents exception items from posting.

Artificial intelligence (AI) technology, increasingly applied to business applications, will soon be harnessed by most top lockbox service providers. Those that use systems combining optical character recognition (OCR) technology with AI to scan and match data from remittances and accompanying documentation to open claims files will, over time, achieve greater speed and efficiency. Also, as more payment data is amassed, predictive analytics will enhance cash flow forecasting for lockbox users.

Going forward, expect today's strong investor appetite for innovative financial technology startups and early-stage companies to fund research and development of increasingly powerful tools that will drive lockbox services.

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