Quick deposit, fast cash

Sometimes, doctors in private practice take care of everything and everyone — except their own end-of-year cash reserve.

After paying substantial year-end insurance bills and doling out bonuses, they often ring in the new fiscal year cash-poor and strapped with bills from vendors.

“They’ll take the excess cash out of the business and, therefore, have no retained earnings to carry over to the next year,” says Phillip Greening, a treasury management officer at Sky Bank.

A lockbox is a treasury management service that can help medical professionals and other businesses quickly expedite checks to the bank all year long. A familiar service for most business owners, lockboxes provide protection against internal fraud and remove the timely burden of preparing checks for deposits from busy office assistants.

Smart Business asked Greening how lockboxes can help small business owners, including doctors in private practice, efficiently restore cash reserve after depleting end-of-year payouts.

Why do private practices often struggle with cash flow?
Doctors get paid a couple of different ways. Their receivables come in the form of personal payment from patients or compensation from insurance companies or medical providers. The doctor’s office receives checks from lots of different sources, and those are located throughout the country. They are not exactly sure where the check will come from and when they will get it. The lockbox service is designed to get the check into the bank quicker and negate end-of-year cash flow issues.

Who else can benefit from a lockbox?
Any business that wants to quickly turn receivables into usable cash could benefit. The ability to expedite receivables on a daily basis and process them directly from the mail can shave up to a week off the deposit process. An employee gathers the mail, separates checks from invoices, compiles a deposit slip, and assembles the checks and slip to take to the bank.

Many businesses make a policy of only going to the bank three times per week. If you factor in the salary and benefits you pay this employee to organize deposits, a lockbox could be a big savings for any company, particularly those that accept out-of-state checks.

How can lockboxes make office management more efficient?
Customer service is important to small businesses, but so is answering the phone and billing. A mundane project like compiling a deposit for the day is a function that could be outsourced. I’d rather have someone in the doctor’s office answer the phone than compile a deposit slip, or an owner of a small business selling a product than driving to the bank to deliver checks.

What about security?
Essentially, a lockbox is like hiring another employee to help distribute financial responsibilities. Most small businesses appoint one administrator to manage invoicing, accounts receivables, banking and account reconciliation. This lack of checks-and-balances can result in serious fraud issues. Still, by moving the critical duty of depositing checks to an outside vendor — a bank — the business owner can rest assured that checks are routed directly to a lockbox, and then expedited immediately to the bank for deposit.

What factors prevent business owners from getting a lockbox service?
Some companies do not capitalize on lockbox services because the owner wants to see remittance information, which appears on the stub. For example, when you pay your cable bill, you detach the stub to send with your check. That stub contains information that business owners maintain in their records.

But actually, all that information is available from the bank either through on-line banking or e-mail notification. The original remittance documents are packaged with a copy of the check and mailed back to the business. The only difference is that business owners get a copy of the check instead of physically handling the check before depositing it.

Are there technologies that will allow business owners to handle the check physically but deposit it immediately?
A new system called ‘remote deposit capture’ is available from some banks. Businesses are given a scanner, which functions much like a credit card scanner. The business owner scans each check he or she wishes to deposit. At the end of the day, the scanner links up electronically with the bank system, deposits are recorded, and checks are automatically deposited into the business account. This option, while not available at all financial institutions, gives business owners the ability to deposit without leaving their office and is also a convenience.

PHILLIP GREENING is a treasury management officer at Sky Bank. For more information, call (330) 258-2366 or visit www.skyfi.com.