Surveillance of Lockbox Services & B2B Payments

In a world full of various e-payment methods, B2B companies still have to deal with a large number of check payments. Paper checks tend to lack the efficiency of digital payments such as ACH( Automated Clearing House), in addition to the processing being laborious and tedious. The accounts receivable processes without a lockbox service might face issues of not receiving remittance information at the time of payment. Not all B2B companies suffer from this affliction. Instead of handling paper checks, they free up resources by using what's called a lockbox service. This shift marked the end of reconciliation issues, but the changing B2B scenarios demanded something swift and instant. It is when Digital Payments such as ACH engulfed B2B space. In the past few years, the world has witnessed higher adoption rates for e-payments among B2B companies. Digital payment methods such as ACH are emerging as alternate options.

"ACH will be a key ingredient to compete in the world of eCommerce in the coming years"

-Manish Kohli | Global Head of Payments & Receivables, CITIBANK Let’s look at what different banks across the globe have to say about using a 50-year-old Lockbox Service in the era of faster Digital Payments.

Why are Lockbox Services still prevalent?

“Reports of my death have been greatly exaggerated. My entire career we've been hearing about the threat or demise of lockbox”

-Mark Twain Lockbox Services today are still being widely used in countries like North America. The main reason why bank lockbox services are still strongly prevailing is due to the minimal occurrence of reconciliation issues for clients. Moreover, the 50-year-old lockbox service is functional because the remittance data comes attached to the check. Moreover, lockbox services contribute to the smooth and efficient functioning of a high volume of B2B business payments.

“The existence of lockbox services in retail is declining 10% per year as consumers write fewer checks. This will eventually lead to the consolidation of retail lockbox services. Diminishing Lockbox Services in wholesale will be a slower process because there are larger payments”

-Rodney Gardner | Global Head of Receivables, Bank of America Merrill Lynch The secret lies in an organization’s ability to acknowledge necessary changes before introducing a faster payment solution. Experts say that dedicated efforts should be made to improve the customer experience when introducing a new solution.

What is the importance of ACH Adoption in B2B Space?

According to NACHA’s (National Automated Clearing House –The Electronics Payments Association) 2015 results, ACH transaction volume grew to more than 24 billion electronic payments, an increase of 1.3 billion payments, or 5.6%, over 2014. Additionally, NACHA reports recurring payments to account for almost half of the total ACH Network volume. In the B2B world, ACH proves to be a preferred payment method for one very good reason. ACH is more reliable, and one can know the status of the transaction much faster. Paper checks could bounce any time up to 3 weeks later (even longer in some cases), whereas one can know the status of an ACH transaction in less than 72 hours. The adoption of ACH in B2B businesses increases Working Capital. An exponential increase in working capital enables companies to meet near-term cost pressures with improving liquidity. Digitizing Payments could also help to fight the humanitarian challenges as it breaks the chain of handwritten checks. ACH could be backed on for every business transactions because of the following: ACH transactions are typically faster to clear and far more reliable than paper checks. ACH gives the best of both B2C and B2B space: as a payer, you say good-bye to bulky checkbooks, and, as a business owner, you give your customers the flexibility to make a one-time payment. Furthermore, ACH saves you the trouble of following up with customers on payment failure.

Stop!-Validate!-Act!

Modern B2B businesses can’t afford to accept paper checks as the predominant method of payment anymore. The real costs of using checks are too high when compared to the benefits of offering digital payments. The fact that digitization of payment methods requires to strike the right balance between payer behavior and changing environment cannot be denied.