Bank lockbox services allow businesses to receive customer payments efficiently and securely through a simplified workflow. Traditionally, bank lockbox services involve customers sending their payments for a business to a dedicated post office box, and then the bank collects the payments, processes them, and posts them to the business.
Today, bank lockbox services go beyond physical payment processing, adapting to the digital age and the advancement of payment processing technology. When customers expect options to pay online, businesses benefit from the use of electronic lockbox, or eLockbox, which is a remittance payment service that allows customers to make payments in whichever form they prefer while delivering those funds in one simple ACH deposit and compressed data file.
Let’s break down the basics of lockbox banking, eLockbox services, and remittance payment processing for businesses.
How Lockbox Services Work
Lockbox banking allows banks to accept payments from customers on behalf of a business. A bank lockbox service collects payments to your company, typically in the form of paper checks and money order, and then processes the payments before depositing the total amount to the business.
The lockbox operates as a safe holding location for your payments. The bank then creates a report to pass along all the relevant information from the payments when they are deposited.
What Is a Lockbox Payment?
A lockbox payment is the check, money order, or other payment type made to a designated location, such as a post office box. A bank collects and processes these payments on behalf of the business.
Lockbox Reconciliation
Once the lockbox payments are processed and batched, they will be posted to your account. Next, your accounts receivable team will complete the process of lockbox reconciliation, which involves applying the payments to the relevant accounts and open invoices through a manual or automated process.
Electronic Lockbox Services
Electronic lockbox services, also called eLockbox services or digital lockbox services, are a modern, digital version of traditional bank lockbox services. Electronic lockbox services are often offered in conjunction with traditional lockbox banking, with eLockboxes providing beneficial reporting capabilities and faster payment processing times.
Paper checks have decreased in popularity, particularly in recent years. The Washington Post reported a steady decline in the use of checks since 1995, with 57% of Americans reporting that they had not written a check in the past 30 days in 2021.
Crucially, electronic lockbox services can expedite payment transfer by eliminating the mail float associated with many online bill pay platforms. Fewer Americans may be writing paper checks to pay their bills, but those bills are being paid through other channels that are digital.
Often customers use their bank’s online banking system’s bill pay solution. The customer believes this will expedite their payment and prevent the risk of fraud but, in reality, most of these payments are also printed to paper checks and mailed just as if the customer had written a check themselves. Elockbox bypasses this and, in most cases, can keep the payment digital, just as the customer had intended.
Due to the digital nature of the transactions, electronic lockbox payments can be delivered faster than traditional lockbox payments, arriving up to two or three days earlier. The accompanying report also arrives at that time, and often that data can be easily integrated into your ERP or other software platforms.
Additional Benefits of Electronic Lockbox Services
Electronic lockbox services, in addition to getting businesses paid faster, offer simplified workflows with tools like Smart Exceptions. When setting up a recurring payment in their bank’s online bill payment platform, users may unintentionally introduce an error into the system by mistyping their account number or routing number leading to an exception in processing that kicks that payment back to the issuing financial institution for repair.
With Smart Exceptions, eLockbox’s business customers experience a one time manual repair and the system retains that and applies that knowledge to all future payments from that payee—creating a smart exception and eliminating that often multiple day delay.
Additionally, the technology can be applied to any scannable documents for data extraction, including explanation of benefits (EOBs), corporate mail, customer satisfaction surveys and more. Through optical character recognition (OCR) and robotic process automation (RPA) the information is digitized and made available for analysis and application by your business.
Physical lockbox payments are tracked in the image archival system and digitized in the reporting process to provide the same detailed data access regardless of the type of payment. With all lockbox payments consolidated and reported to you in a digital format, your internal reporting, ERP, and auditing process are easy and accurate.
At FirsTech, we have diversified our offerings when it comes to remittance processing, offering a flexible, customizable Lockbox Solution Suite that can be tailored to your specific business needs.
Retail vs. Wholesale Lockbox Services
When exploring lockbox banking for your business, you see some services labeled as “retail” and others as “wholesale,” leaving you wondering what the difference between the types are. Retail lockbox services and wholesale lockbox services are very similar in how they operate, but differ in who they serve.
Retail lockbox services are designed for businesses that receive large amounts of payments in smaller dollar amounts, which can also be described as high volume, low dollar payments. Retail lockbox services typically receive fewer payment methods and have a more standardized process. If you’ve ever paid a small bill, like a utility bill, to a PO box address, it was likely a retail lockbox.
Examples of retail lockbox banking include:
- A tenant paying a utility bill
- A homeowner paying HOA dues
- A patient paying a hospital bill
- An individual paying a credit card bill
Wholesale lockbox services, on the other hand, are made to receive low volume, high dollar payments, meaning fewer payments but in higher amounts. Whole lockbox services are a specialized B2B version of a lockbox banking that receives and consolidates payments between businesses.
Wholesale lockbox payments tend to be less standardized and come in a wider range of formats and intervals. Because of this inconsistency, wholesale lockbox services feature a higher level of manual oversight to ensure accurate remittance and reconciliation. By using a lockbox for these payments rather than processing the payments in-house, businesses can save time and feel confident that they avoided costly errors.
Examples of wholesale lockbox banking include:
- Healthcare organizations billing insurance companies
- Clients paying wholesale shipping companies
- Business making large software purchase
At FirsTech, we’re experienced in providing both retail lockbox services and wholesale lockbox services, with digital lockbox solutions and hybrid options to ensure you find the right solutions for your business.
Pros of Bank Lockbox Services
Bank lockbox services can provide a crucial pillar of your financial framework, streamlining how you receive customer payments. Here are a few key benefits of utilizing lockbox banking for your business.
Reduced Workload
With lockbox banking, the large workload of processing payments is outsourced, saving valuable time for your accounts receivable team. Depending on your lockbox service provider, you may also be able to direct many customer support questions to the provider, saving additional time and stress.
Integrated Data
Many electronic lockbox banking solutions can integrate directly with your CRM or other platforms, cutting back the time needed for the cash reconciliation process. With integrated data and tools, you can get a complete view of your finances, identify potential problems areas, and chart a clear plan for future growth.
Financial Security
Lockbox banking ensures that your customer payments, whether they’re paper checks or electronic transactions, are outsourced to a bank. Records of payments are also backed up by the bank, which have strong security practices in place due to the nature of their industry. Additionally, lockbox services reduce the number of employees involved in payment processing, lowering the opportunity for fraud, theft, and error.
Reduced Fees
Lockbox banking typically incurs reduced processing and transaction fees, allowing you to net more of each payment as it is processed. With thoughtful budgeting, the cost of lockbox services can be leveraged for optimal efficiency.
Improved Cash Flow
Lockbox services can provide consistency in cash flow, as deposits from the lockbox can occur on a set schedule daily. Your cash flow won’t be held back by a team member being on vacation or falling behind on their workload, as all payment processing occurs through the service.
Cons of Bank Lockbox Services
There are a few potential disadvantages you should consider when reviewing lockbox banking services for your business.
Service Cost
Lockbox costs can vary, sometimes requiring a setup fee, a monthly fee, and a fee per transaction. When considering bank lockbox services, weigh how much it would cost to have an employee in-house to process those payments, including any training time they would need and the cost of potentially adding staff to cover the task. Lockbox banking may end up costing less than the labor cost of processing those payments in-house.
Potential Errors
When selecting lockbox services, the provider you choose to partner with matters. It is always possible for there to be errors when inputting the payment information, but, fortunately, a good lockbox service provider will include thorough documentation of the payments and process.
Key Industries Using Bank Lockbox Services
While many types of businesses use lockbox payment systems, there are a few particular industries that leverage lockbox services most effectively.
Healthcare Organizations
Healthcare organizations can benefit from both wholesale lockbox services and retail lockbox services. Healthcare organizations rely on a complex network of billing and payments not just between them and their patients, but also between insurance companies and medical equipment providers.
In the high stakes industry of healthcare, providers shouldn’t have to spend excess time sorting out payment systems. Bank lockbox services allow healthcare organizations to focus more on their patients and their practices.
Healthcare organizations do require a high level of security and compliance when it comes to handling sensitive information, including payment information, regarding people’s health. Fortunately, great lockbox providers like FirsTech also maintain high standards when it comes to operational compliance including HIPAA, making lockbox services a great match for the industry.
Dental Practices
Like healthcare organizations, dental practices handle a large volume of customer payments and additional B2B payments from insurance providers. Many dental practices have far smaller teams than healthcare organizations, though, and thus would benefit even more greatly from lockbox services, particularly as a part of an integrated accounts receivable system.
Utilities
Utilities are an essential part of daily life, with every household responsible for paying their monthly bills for electricity, water, gas, and other utilities. Utility companies must process a huge volume of payments every month for all of the customers they serve, and thus can find bank lockbox services to be highly beneficial.
Financial Institutions
Banks and credit unions not only need assistance with their own receivables but look to provide the same tools to their commercial customers. When working with a trusted and reliable Lockbox Services provider like FirsTech, the financial institution’s commercial banking team can expand their service potential by reselling the service, helping their customer’s businesses scale.
Explore Bank Lockbox Services from FirsTech
Today, lockbox services provide a critical service for businesses of all types and sizes across North America. Bank lockbox services have developed over the years to reflect the way modern businesses and consumers receive and make payments, which has solidified the service type as an essential part of payment remittance processing.
At FirsTech, we have more than forty years of experience partnering with businesses and financial institutions to provide innovative solutions and services in the payments industry. Our Lockbox Solution Suite is just one pillar of that commitment. We’re dedicated to your success.
To customize lockbox services for your business, or to explore other services from FirsTech, get in touch with our team today.