Lockbox

A lockbox system is a bank-operated service offered to companies for the receipt of payments from their customers. Instead of payments made by the customer going to the company, these payments are made to a post office box. The bank will then review the payment received to the post office box and processes the payment themselves. Once payment has been processed, the bank will directly deposit it into the company’s bank account. In some cases, the bank may scan these payments and post them to a secure website – to which only the bank and company have access. Moreover, the company’s accounting staff can access the scanned images and apply payments to their customer’s outstanding accounts receivable.  

Cost of Lockbox Banking 

To set up a lockbox banking service, a bank will typically charge a setup fee and a reoccurring monthly fee for the post office box. However, this depends on the bank you choose to work with. A bank may charge either a setup fee or monthly fee, or both. The average setup fee is around $1,000 with a monthly fee ranging from $300-$700+, depending on the type selected. Additionally, a bank may charge a small fee per transaction.

Types of Lockboxes  

Wholesale Lockbox: a wholesale lockbox is designed for payments made by one business to another business. These payments are typically high dollar amounts with less frequency.  

Retail Lockbox: a retail lockbox is a relationship between a business and an individual. The company collects payments at frequent intervals.

Soft Lockbox: this type of lockbox may work in one of two ways: payment is either deposited directly into a lender-controlled account and sent to the borrower or payments are deposited into a restricted account and moved into another account until the debt service amount is secured. 

Hard Lockbox: with a hard lockbox, payment is deposited into a restricted account and moved to a cash management account, like the second option of a soft lockbox. On the payment date, the bank will wire the funds from the cash management account to the lender, and then reimburse the borrower for monthly operating expenses. In this situation, a borrower only receives cash flow from the reimbursement of operating expenses.  

The Lockbox Process 

1.  The bill payer mails a check to the P.O. box set up by the bank 

2. The bank collects the checks from the P.O. box at intervals depending on the type of lockbox used.  

3. The company scans and stores the contents of the check (account number, payment amount, and other information) on a secure website..  

4. All payment information is transferred electronically to the company and the bank then deposits the funds into the company’s account.  

Benefits and Drawbacks of Lockboxes