Lockboxes Are A Smart Choice

            The popular perception of commercial lockboxes has changed enormously over the years.  Decades ago, lockboxes were seen as a service used only by small, financially weak companies that for a variety of reasons couldn't or wouldn't provide customers a business street address.

            That antiquated view couldn't be more out of date today.  Lockboxes are now used by thousands of companies, including some of the strongest and most reputable firms in the nation.

            Good reasons exist for these changes in attitude about lockboxes. Today, most companies recognize that the use of lockboxes is a sound business strategy that allows them to speed up cash collections and permit more timely and efficient use of their revenues.

            Rather than requesting customers send checks directly to their home offices and having employees allocate time and energy to entering those checks in their systems, they alert their customers to the need to send checks directly to the lockbox of their banks.

            In the case of most banks, the lockbox is at a local post office.  A bank courier visits the post office daily and collects everything that's arrived in the lockbox the night before.

            That courier brings everything collected back to the bank, where checks are deposited into the companies' accounts.  Additional material that arrives along with the checks is then routed by mail, fax or overnight delivery to each individual company for its own use.

            For instance, a check sent to a company’s lockbox may be accompanied by a change of address notice announcing to the company that its customer has moved.  The bank will process that check, and send the company the change of address notice.

            Because banks pick up the content of their lockboxes daily, companies that use lockboxes enjoy the considerable benefit of having their checks deposited in their accounts immediately.  That provides them with a sizable advantage over competitors that collect checks themselves, then hold the checks for several days until an opportune time arrives to visit the bank and make deposits.  The company with a lockbox account has its money going to work for it immediately, while the non-lockbox firm's money is idle and unproductive until a visit to the bank can be scheduled.

            Another benefit of using lockboxes is that it frees the company's employees to work productively on other job responsibilities.  No longer do they need to take time away from the duties for which they've been trained to collect the company's checks and process them internally.  With lockbox services, those tasks are handled by the bank, allowing employees of companies that use lockbox services to be more productive, and do what they do best.

            Banks with real-time online banking services offer yet another benefit to companies that choose to use lockbox services.  The real-time feature allows lockbox customers to go to the Internet, log on to the bank's site and immediately verify that checks have been deposited in their accounts.  Banks that don't offer real-time online banking products force their customers to accept a delay in that verification process.  But with real-time services the information is instantly accessible.

            With lockboxes and real-time online banking services, a company enjoys the luxury of being able to implement key decisions more rapidly.  Because checks are arriving in the company's account more expeditiously, and because managers are instantly aware the money is available, the company can more quickly make informed decisions regarding cash disbursements, timely investments and all-important loan paydowns.

            By contrast, without that rapid movement of checks into its account -- and the awareness that the checks have arrived -- it's difficult for a company to know when it has enough to pay the bills, make loan payments or initiate investment decisions.

            One final benefit of a lockbox is that it eliminates concern about potential embezzlement by employees.  Because receivables are sent directly to the bank, there's no risk of employees depositing checks in their own accounts rather than those of the company they work for.  For many companies concerned about embezzlement, that provides an extra measure of comfort.

            The kinds of companies for which lockbox services are best suited include those with numerous customers who mail in checks, and those who due to staffing concerns frequently delay a day or two between receipt of checks and depositing the checks in the bank.  In the commercial real estate industry, an example would be a company that owns multiple buildings and has numerous tenants.  The use of a lockbox in combination with real-time online banking services allows such firms to know exactly when their tenants are making their rent payments, speeding the availability of funds.  It also permits them to determine who is paying rent on time and who isn't.

            All this said, one obvious question remains.  If lockboxes offer so many advantages to businesses, why don't more companies choose to use them?  The answer is that companies reluctant to use lockboxes often hold one of several misconceptions about this service.

            The first is that a lockbox service is far more expensive than a normal check collection service because it's more "hands on."  While it's true that lockboxes are more costly, technology advancements brought about by computers have greatly lowered the cost for banks to offer such services to their customers.  The banks' cost savings are passed along to customers, making the service increasingly affordable.  That's why more banks, including many smaller banks, are able to offer lockbox services today than ever before.

            The cost of a lockbox depends on a number of different variables, primarily how lockbox customers prefer the bank to send non-check mailed material to them.  That can be accomplished through fax, the U.S. Postal Service, messenger or overnight mail.  Many prefer overnight mail, so they can have the information the next day.  That's more costly than sending it through the U.S. Postal Service, so that lockbox service will be more expensive.  However, the vast majority of customers prefer that they receive non-check material by regular mail.

            Another issue goes back to the antiquated perception of lockboxes.  Many years ago, there were companies that believed if they asked their customers to remit to a lockbox, those customers would assume the firm was on shaky ground.

            Back then, those worries had some validity, because companies that used lockboxes often tended to be financially weak.  Much has changed over the quarter century or more since those perceptions reigned, and today many large and very strong companies use lockboxes, reaping enormous advantages from them.

            Think of the payments you send to the phone company, electric company and cable TV companies each month.  Not infrequently, the return address on the envelopes is a lockbox.

            Finally, some companies choose not to use lockbox services because they simply refuse to abandon the old-fashioned preference for handling their own money before depositing it in the bank.  In other words, they're hesitant to give up what they perceive as "control" over their money.  But in so doing, they may be hindering their potential for growth.

            To obtain a lockbox, a small business needs only contact its bank and sign an agreement specifying the expectations of both the bank and the business.  That's really all there is to it.  The lockbox can be ready to begin accepting payments from customers as early as the same day.

            The bottom line on lockboxes is simply this.  Why process checks yourself, when it means delaying putting your money to work for you, postponing important decisions regarding those funds and asking your staff to handle a task for which they may be ill prepared?

            A lockbox service is a cash management tool that can pay for itself by performing these tasks for you, and freeing your staff's valuable time.