LOCKBOX SYSTEM

DEFINITION
A lockbox collection system allows
companies to quickly process payments
from customers. Customers send
payments to one or more post office
lockboxes. A bank employee collects the
payments, deposits them into the
companys account and sends a report to
the company.
 ONLINE SHOPPING
Many online electronic bill-pay services are not
100 percent online. The payee might not be set
up to accept electronic payments, so the bill-
pay service will print out large numbers of paper
checks and then mail them to the lockbox,
where they will be processed alongside all the
other paper checks.
 WHOLESALE AND RETAIL
Lockbox services are generally divided into
wholesale and retail.
Retail lockboxes are for companies with high
volumes of consumer-oriented payments such as
utility payments, loan payments, etc., and these
remittances often include a standardized "payment
coupon".
Wholesale lockboxes are for corporate-to-
corporate payments and tend to be higher dollar
amounts than retail lockbox transactions. These
transactions usually do not include a standardized
payment coupon and require more manual effort
for the bank to process.
 ADVANTAGES
A lockbox system speeds up processing time for your
payments. Instead of checks sitting in your office while
an employee matches the payment to a bill and logs the
payment into your system, then takes the payments to
the bank, the payments go directly to the bank. Your
employees post the checks after the fact, based on the
reports you receive from the bank. Your money is
available for your use more quickly. Companies that
have branches in different parts of the country may set
up lockboxes near those branches. Depending on where
theyre located, customers send payments to the closest
lockbox. This shortens mailing time and further speeds
up access to funds for the company.
 DISADVANTAGES
Youll pay for the lockbox service, usually on a per-
payment basis. If you receive a high volume of small
payments, the cost of lockbox banking could quickly
outweigh any advantages. Lockboxes are only as
secure as the employees in charge of collecting
payments from the boxes. These clerical employees
may be among the least senior at the bank and
susceptible to bribery. In one instance, investigator
Stephen G. Korinko with Stroz Friedberg uncovered
the theft of $11 million from a large banks lockbox
service