Banks have been processing remittances for decades. Customers send payments to a post office box, and the bank collects the payments and then processes and deposits them into companies’ accounts. It’s called lockbox banking and has been an efficient model since the 1940s.
As technology has evolved, so, too, has this operation. But the goal remains the same: to reduce the “float,” or length of time that payments go unprocessed. Decades after their inception, lockboxes — with newer, digital features — still can help business speed up their cash flow.
How Lockboxes Work
Lockboxes come in two versions: retail and wholesale. The former involve consumers paying businesses; the latter involve businesses paying other businesses. As you might expect, retail lockboxes involve high volumes of relatively small amounts of money, whereas wholesale lockboxes involve fewer transactions but with much high dollar amounts.
When you think of a lockbox, you might envision one of those small boxes you open with a key and that holds maybe 50 envelopes. But the vast number of consumer payments for everyday bills like cable, utilities and credit cards aren’t sent to a post office box; they’re delivered to a “caller box” that holds thousands of envelopes.
A series of numbers appears at the bottom of your payment coupon, including your account number and how much is owed. Banks and third-party vendors that provide lockbox services on contract with retailers and banks scan those numbers and credit the proper amount to the business’s account, typically on the same day they are received prix viagra andorre.
Business-to-business payments also are processed expeditiously, though they tend to be more complicated. And wholesale lockbox services include additional document management options involving more-advanced accounting systems.
Benefits and Flexibility of Digital
Even though many consumer-to-business payments have shifted from checks to credit cards and Automated Clearing House (ACH) transactions, most business-to-business payments still are done by check, particularly among businesses with revenues between $10 million and $50 million.
Digital lockbox services offered by banks such as First Liberty use high-speed scanners to capture images of payments and other corporate documents to make them easier to locate and search.
Lockboxes boost your ability to adapt to business cycles, too. If it’s known, for example, that deposits run heavy at the beginning of the week, or tend to arrive close to a due date, it can be more efficient to have an outside entity process payments as needed than to maintain a regular staff that routinely gets overworked or underworked. Similarly, digital lockbox services can accelerate the receivables process for supply chain manufacturers whose volumes fluctuate with demand.
Digital lockboxes especially have something to offer for health care organizations, many of which are drowning in paper. Sifting through explanation-of-benefits forms and other printed documents is inefficient compared to scanning them using optical character recognition (OCR) technology, which renders them keyword searchable. Digital technology can also make it easier to establish an audit trail and comply with privacy regulations governing medical records.
When in-house employees are responsible for both sending out invoices and receiving payments, fraud can occur. Lockbox services can help here. When businesses contract with banks or third parties to handle remittances, they remove the opportunity and thereby reduce their vulnerability to internal theft.
Another benefit is that your company’s financial information is stored behind the bank’s network, which may well be better at guarding against security breaches.
Overall, digital lockboxes can lower costs, add flexibility and improve customer relationships. And just as they did when introduced under the New Deal, they reduce the “float.”
Peter Lewis, NerdWallet
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