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.
Luckily, businesses can enlist the help of lockbox solutions to ease this stress by managing payments in a more simplified and secure fashion.
What is a lockbox?
A lockbox is a bank-operated mailing address or post office (PO) box that a business can use to collect payments from its customers.
Therefore, lockbox banking is the commercial service banks offer that ensures customer payment receipts are sent to this secure location and processed accordingly.
Merchants can choose from two different types of lockbox services:
- Retail: Retail lockbox services are geared toward companies that receive high volumes of payments that consist of lower amounts.
- Wholesale: Wholesale lockbox services are geared toward companies that receive fewer payments but of higher value — these services typically benefit B2B merchants.
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.
How does a lockbox work?
A lockbox service works by directing a company’s in-mail customer payments (checks and cash deposits) and remittance documents to a secure PO box location or mailing address that’s easily accessible to their bank.
Once customers send their payments to the secure bank lockbox, the bank withdraws and processes these payments, creates an accounting entry, and deposits these funds into the company’s bank account.
Merchants can incorporate lockbox payments to enhance payment collections
Merchants can incorporate lockbox payments into their infrastructure to encourage faster transactions with their customers.
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.
If a business has multiple locations or branches, it can use multiple lockboxes to make the payment collection process even more efficient. Many lockbox service providers also offer same-day deposits for merchants.
Once a bank processes a lockbox payment, the affiliated company is notified. Banks may also scan remittance slips and checks to provide businesses with a digital receipt.
Lockbox payments can be especially helpful for businesses that receive large volumes of payments, as they can accelerate the accounts receivable process and improve cash flow.
What are the costs associated with lockbox banking?
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.
Standard lockbox fees include:
- Setup/installation fees
- Recurring monthly charges
- Per-transaction costs
- Additional fees (software integrations, granting access to checks, etc.)
Since lockbox payment processing can be time-consuming for banks, they typically charge for their time as well.
The cost of lockbox services can be expensive, especially for smaller merchants with fewer mail-in transactions or B2B merchants with larger payment amounts that require more security.
Since lockbox fees can and will add up over time, merchants should evaluate their accounts receivable operations to ensure that a banking lockbox service will be financially advantageous.
Merchants would be wise to calculate how many payments they’ll likely direct to their lockbox, the number of lockboxes they require, and if the overall costs of bank lockbox services outweigh the benefits.