Lockbox Services

What is a Lockbox?

Man opening mailbox
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Lockboxes help organizations collect payments efficiently. Instead of handling incoming payments yourself (and waiting for those payments to move through the mail), your bank can set up multiple mailboxes around the country to receive payments and handle those payments for you.

Benefits of Lockboxes

The main reason to consider lockbox services is speed and efficiency: money gets into your account more quickly, and at a lower cost to your organization.

When customers or partners send you money, you need to deposit those funds. That means waiting until the payment arrives, sending somebody to the bank with the check (or having an employee convert the payment to an electronic payment), and waiting for the funds to clear in your account.

When you have a high volume of receivables, it takes significant resources to handle those payments. What’s more, waiting for paper checks to move across the country means you have to wait an extra day or two before you get paid.

Fast payment: with a lockbox service, you get paid more quickly. With input from your bank, you set up mailboxes in selected geographic areas that will minimize mail time from customers. Of course, you don’t have employees at those locations – the bank does – so you’re paying for the mailbox and for somebody to process those payments for you.

Multiple deliveries per day: sometimes mail is delivered multiple times at high-volume mail centers, which also helps you collect more quickly.

With your local mail service, you might only get one delivery per day, resulting in extra “float” time. Especially when the dollar amounts are large, waiting one more business day can be costly.

Outsourcing receivables: an employee of your lockbox service will open mail, key in any information from payments, and sometimes provide additional services.

The promise from vendors is that you get to put your resources towards your core business while letting them handle payment processing.

Additional tools: some lockbox providers offer additional features that keep things moving smoothly. For example, your bank might keep a record of account numbers from customer checks so that they can identify how to credit a payment if your customer forgets to include a payment coupon (or the customer doesn’t provide his account number). For any oddball items or errors, the bank can set up a website where you view these “exceptions” and decide what to do about the payment.

Electronic conversion: almost all banks will convert payments to electronic payments for you (when allowed).

Types of Lockboxes

There are two basic types of lockbox services: retail and wholesale.

Retail lockboxes are used by organizations that receive a large volume of relatively small payments. For example, a business that has customers around the nation (such as a phone company) might set up lockboxes in several areas to prevent payments from spending several days in the mail. These payments often come with a standard computer-readable payment coupon. In many cases, “online” bill payments from your consumer bank account end up in these lockboxes.

Wholesale lockboxes are for larger, less-frequent payments, such as payments between business partners (suppliers, for example). Because these payments can be large, it might be worth getting the money in the bank one or two days faster. However, these receivables are usually not as simple as a check with a standardized payment coupon – they require more labor and expertise to process.

Other lockboxes can be set up for any purpose. Any time a receivable needs to go through the mail, somebody can design a creative and customized solution.