That post office box is your electric company’s lockbox. It’s a special P.O. box to which customers can send payments. The bank then collects those payments, deposits the cash, and updates the company on the transactions.
How Lockbox Payments Work
A company can use more than one lockbox, perhaps one in each region of the country in which it does business. Customer payments can be mailed to the closest lockbox instead of across the country, which decreases mail time and speeds up the company’s access to its funds. When a payment arrives at the lockbox, it’s collected by the bank, along with potentially many other payments, possibly up to several times a day. The bank might scan each remittance slip and check, enabling your company to receive the information in digital format. The money is deposited. Your company is notified of the payment to the customer’s account.
A Variation on Lockbox Payments
Some banks offer digitization and image-based lockbox services. Image-based services scan everything that’s sent to your lockbox so you can view the information online. You can often see images from payments received on the same day they reach the lockbox. Optical Character Recognition (OCR) programs “read” everything and store the output electronically. These types of services automate data entry and provide you with same-day customer and financial information. They allow you to back up and analyze your lockbox data in several different ways.
Pros and Cons of Lockbox Payments
Pros Explained
Lockboxes make receiving payment easier: Remitting payment to a lockbox is an easy, simple way for a customer to send a check for payment or deposit. The payment is delivered reliably, and checks clear quickly for the price of a stamp. Lockbox payments are credited to the customer’s account more quickly because of how frequently the bank collects and deposits payments. Payments can be collected more than once a day: Mail may be delivered to a lockbox location multiple times per day, instead of the once-daily visit your office may be accustomed to. This offers more opportunities to capture payments and make deposits to your account. Payments avoid the delays of USPS deliveries: Lockbox payments reduce “mail float,” the time between a customer mailing the check and your company receiving it. This can help you maximize all the money that’s available to you.
Cons Explained
Lockboxes are still less efficient than electronic payments: While they do speed up processing time, reduce mail float, and provide quicker access to funds, there are still some disadvantages to lockbox payments. They’re faster than accepting checks at the office, but they’re still slower than other electronic means of transfer. Payments must still travel through the mail. They must still be processed before they’re available to accounts receivable. Payments can be vulnerable to security risks: There’s somewhat of a security risk in using lockbox payments. There’s a risk of fraud if your bank relies on manual data entry for processing lockbox payments, whether on the part of an unscrupulous bank clerk, an offshore contractor, or a customer writing a fraudulent check. And the high volume of checks processed means there’s a margin for error. Some hands-on processing is still required: Lockbox payments don’t automatically tie into your accounting system. Back office staff must still reconcile payments with customer accounts.
