Investor's wiki

Lockbox Banking

Lockbox Banking

What Is Lockbox Banking?

Lockbox banking is a service given by banks to companies to the receipt of payment from customers. Under the service, the payments made by customers are directed to a special post office box as opposed to going to the company. The bank goes to the crate, recovers the payments, processes them and deposits the funds straightforwardly into the company's bank account.

How Lockbox Banking Works

For businesses that receive a large volume of payments or large-section checks joined by remittance records, a lockbox arrangement can streamline collections and payment processing. Using advanced lockbox technology, banks have laid out numerous communication centers for businesses to use to receive payments and deposits.

A business lays out a post office box to receive payments from customers. The bank dispatches the day's deposits and communications to its processing center. The business' remittance documents are checked, payment information is caught, and clearing refreshes are sent to its accounts receivable. Every night, the business' lockbox data is backed up for secure storage and simple access.

What is the Cost of Lockbox Banking?

Lockbox banking services can be costly . The banks charge a setup fee and a repetitive month to month fee. They likewise charge a fee for every transaction. Their rate system is typically not simple and difficult to peruse. Commonplace lockbox service departments process a huge number of checks a month and charge for the time. The minutes charged add up rapidly. In this way, even assuming the bank may be more efficient than your own administrative center, they actually are depending on a fair degree of manual processing that cause labor costs.

The Advantages and Disadvantages of Lockbox Banking

Likewise with most payment processing services, there are the two advantages and disadvantages to lockbox banking. It gives companies an exceptionally efficient approach to depositing customer payments. This is especially beneficial in the event that a company can't deposit checks on an opportune basis or on the other hand in the event that it is continually getting customer payments through the mail.

Then again, lockbox banking can likewise be extremely dangerous. Bank employees who approach lockboxes are rarely managed, which opens up the situation to conceivable fraud. The fraud essentially happens as check forging, on the grounds that the checks that are in the lockboxes give all the information expected to make counterfeits.

[Important: A company can safeguard itself from such fraud by utilizing a bank that it trusts and by continually monitoring its lockbox.]

Special Considerations

Businesses utilizing lockbox banking can substantially bring down their internal processing costs, speed up collections and convert their receivables into cash all the more rapidly. There is no requirement for businesses to prepare their own bank deposits or keep up with accounting records since that is done naturally through lockbox banking.

Part of the lockbox processing is finished consistently, so businesses can increase their control and effectiveness in receivables management while further developing audit controls and data security. Businesses benefit from enhanced reporting capacities with daily access to deposit sums, fund availability and payment information, including electronic pictures of handled payments and coupons.

Key Takeaways

  • Lockbox banking is a service given by banks to companies to the receipt of payment from customers.
  • There are masters can cons with regards to lockbox banking; while it is advantageous, it can likewise be unsafe and lead to possible fraud, as counterfeiting.
  • Using advanced lockbox technology, banks have laid out various communication center points for businesses to use to receive payments and deposits.
  • Businesses can utilize lockbox banking to bring down their internal processing costs, convert receivables into cash rapidly, and speed up collections.