Does your business receive an average
of more than 100 checks per month
from your customers? If it does, you may be all too familiar with the problems
that can arise from handling a multitude of
accounts receivables, particularly if your
business is growing. Checks arrive only
once a day by mail and must be processed
and deposited in the bank on a regular
basis in order to ensure good cash flow.
The problem arises when you must hold
checks over a day or two because your
staff doesn’t have the time to process them.
One way to manage this inflow of money
is to use lockbox processing, which is a
cash management service provided by
banks to their corporate customers.
“Lockbox services are designed to speed
up the collection and deposit of check payments that are received through the mail,”
says Tracy Marshall, vice president of
Treasury Management Operations for
ViewPoint Bank, based in Plano, Texas.
Smart Business spoke with Marshall
about how a lockbox service works and
the advantages of using this type of service.
What types of businesses use lockboxes?
Businesses that typically use lockboxes
are those that receive paper check payments in the mail from consumers or business customers. Businesses that receive
payments by credit card, through an online
merchant account or over the counter do
not need a lockbox service.
Businesses that use lockbox services
either deal directly with the consumer —
such as doctor’s offices, local utility companies, cable TV franchises and local governments — or are companies that have
many business clients, such as printers or
manufacturing suppliers. Banks sometimes offer two different lockbox products,
one for retail and one for wholesale. Retail
accounts typically have more checks to
process and more paperwork.
What are the benefits to having a business
lockbox?
Its primary advantage is the lockbox’s
direct impact on a business’s cash flow.
Checks are received faster, bypassing the
business’s internal mail sorting and delivery time. Once the checks are received in
the special P.O. box, they are processed
faster — often checks are delivered to the
bank several times a day. Therefore, the
money is available to the business sooner.
Using a lockbox also reduces internal staff
requirements, since the lockbox service
acts as an accounts receivable department.
Another benefit is the ability to see remittance information online — many banks
offer image delivery services, which allow
the business to quickly access financial
information — such as average daily sales,
average remittance size, etc.
How does the lockbox service work and what
are the fees?
A special local post office box is set up to
collect all remittances. The bank’s lockbox service collects these payments several
times a day from the post office, sorts and
processes the checks, posts the payments,
and makes copies of the checks and all correspondence/remittance paperwork, then
deposits the checks in the business’s
account. The remittance package is then
sent along to the business — either electronically or by mail — to post on the business’s system.
The cost varies depending on the types of
services, but a basic maintenance and per-item fee can be bundled into a $100 per
month charge. That will typically include
about 100 processed checks per month,
online check retrieval for paid items and e-mail notification of a deposit. For customers who have a higher volume of
checks that need to be processed, the price
goes up from there to a maximum of about
$350 to $500 per month. Again, the price
depends on the business’s needs. Retail
accounts are generally more expensive
than wholesale accounts since more
checks need to be processed on a monthly
basis.
Are there any downsides to using a lockbox
service?
The perceived downside could be the
cost of the service, but not if a business
owner considers the cost of paying an
accounts receivable employee or two.
Also, banks’ commercial clients are often
on account analysis, meaning that if a certain balance is met on a monthly basis, the
client is eligible for a credit. That credit can
be used to offset the lockbox service
charge.
TRACY MARSHALL is the vice president of Treasury
Management Operations for ViewPoint Bank, headquartered in
Plano, Texas (www.viewpointbank.com). Reach Marshall at (972)
801-5838 or [email protected].
