Businesses often find it difficult to deposit checks in the bank daily, especially post working hours. However, it is essential to process them on time to maintain accurate records and a healthy cash flow. To simplify this problem, banks offer lockbox services that businesses can use to collect payments from their customers.
In this service, banks provide businesses with a specific Post Office (P.O.) number. The business’s customers can then send their checks to the specified P.O. box. The bank then collects the payment on behalf of the company and deposits the cash in the business’s bank account.
A lockbox payment is a way of accepting checks from customers with the help of a bank’s P.O. box allotted to a business. For example, Company A can have a P.O. box address where customers from a particular region can mail their checks. The bank that manages the address then converts the checks to cash and sends the payment updates to the business.
Businesses that operate in multiple regions can have separate lockboxes with banks in different regions. They can then provide their customers with the respective lockbox addresses they are supposed to mail their checks to.
On receiving the checks, banks collect them and scan the remittance slips of the checks to provide the business with a digital copy of the payment. After this, the bank deposits the money in the business’s bank account.
A lockbox allows businesses to collect payments more efficiently and reduces the hassle of handling the payments themselves. Let’s look at a few other benefits businesses get from lockbox payments.
By using a bank lockbox, companies can pass the hassle of managing customer payments, converting them to digital format, maintaining records, and depositing the money to the bank. This reduces a lot of manual work and increases the employees’ overall productivity and business performance.
Let’s assume that a company receives checks only at one location. Payments from customers near that address will be faster than those located far away. This impacts the cash flow of the company.
Businesses can mitigate this problem by using multiple lockboxes in different geographical locations where customers can send their checks. This will decrease the overall time to receive and process the payments.
Accounting errors are a significant problem for many businesses. And when there are a lot of manual processes involved, errors become almost inevitable. However, using lockbox payments can reduce these errors to a large extent.
Banks receiving checks can directly process and deposit the money in the business’s account. They can also simultaneously update the information in the company’s accounts receivable(AR) portal.
Depositing checks manually can be troublesome, especially post working hours of a bank. However, banks process lockbox payments even after the fixed working hours, which ensures that the payment is credited to the business’s account on the same day.
Using a lockbox for receiving checks is much better than using your company’s address. However, there are also some problems that businesses are bound to encounter along the way. Let’s have a look at them.
Using a lockbox for receiving checks does speed up the entire payment process to a considerable degree. However, it is still inefficient compared to electronic payment methods such as bank transfers, credit cards, debit cards, and so on.
In the advantages section, we talked about how lockboxes can reduce accounting errors. But lockboxes are not 100% error-free. They are prone to fraud and manual errors, especially when the volume of transactions is very high. Security threats to lockboxes can seriously impact a business’s finances.
Banks often charge a hefty amount of fees for offering lockbox services. There are fixed monthly costs in addition to the fees for every check deposit and handling of other manual tasks. Yes, it takes away a huge responsibility from the business and saves time for employees, but checking whether the benefits outweigh the additional costs is crucial. If a company receives most of its payments via checks, then using a lockbox might be profitable. Otherwise, processing them in-house will be a better option.
The primary task that bank lockboxes help businesses with is invoice and remittance matching. Manual cash application processes take a lot of time and are prone to errors. Therefore, businesses are inclined to spend thousands of dollars monthly on bank key-in fees.
HighRadius helps companies eliminate bank lockbox fees by automating their cash application process with its AI-based multi-OCR engine. Its cash application software can auto-extract payment information from email bodies and file attachments and match it with invoices. It also supports automated data aggregation from web portals.
Its AI capabilities help predict missing remittances and enhance the image quality of checks with noise reduction. This helps in scenarios where a check is soiled or slightly damaged. The cash application automation also enables faster dispute resolution.
Lockbox is a service provided by banks that enable businesses to accept customer check payments. Customers send the checks to the P.O. box address that the bank allots to a business rather than its main office address.
Every lockbox is a P.O. box, but every P.O. box is not a lockbox. In other words, a lockbox is a special form of P.O. box that banks provide businesses for receiving payments from their customers.
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The HighRadius RadiusOne AR Suite is a complete accounts receivable’s solution designed for mid-sized businesses to put their order-to-cash on auto-pilot with AI-powered solutions. It leverages automation to fast-track key accounts receivable functions including eInvoicing & Collections, Cash Reconciliation, and Credit Risk Management powered by RadiusOne AR Apps to improve productivity, maximize working capital, and enable faster cash conversion. Affordable, quick to deploy, and functionality-rich: it is pre-loaded with industry-specific best-practices and ready-to-plug with popular ERPs such as NetSuite and Sage Intacct. The HighRadius RadiusOne AR Suite is designed to automate labor-intensive processes while streamlining credit and collections activities for faster AR processing, better cash flow and improved profitability.
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