5 things you should know before paying for a lockbox service

Sep 7, 2021 by Kelsey Banerjee

For decades, bank lockboxes have provided accounting departments access to a seemingly efficient way to process checks. Without a bank lockbox, your team would waste even more time opening mail, coding checks, matching them, and recording payments.

However, as the payments landscape has shifted, so has its technology. While lockboxes are still widely used, it’s critical to be aware of their pros and cons before investing in a lockbox provider. Understanding a lockbox’s strategic value is even more important when you consider its cost, which is usually an overall monthly service fee plus an additional transaction fee per payment.

You probably already have an idea of why you want a lockbox: you know it can reduce payment lag time, improve back-office efficiency, and decrease mail float. So, instead of rehashing all the reasons you want to invest in a lockbox, let’s look at five things you need to know before you sign the dotted line.

1. There’s more than one type of lockbox

When deciding on a lockbox service, you want to make sure it fits your organization’s needs. And, there is more than one type of lockbox. Outside of the customized services for small businesses, there are really two options here:

  • Retail – A retail lockbox is used primarily for B2C companies or those with frequent, small payments. In this model, your bank will set up lockboxes in different locations across the country to cut down on sending time.
  • Wholesale – In contrast, wholesale lockboxes are typically used for larger companies receiving larger payments. Through wholesale, the bank may make digital copies via optical character recognition (OCR) and page-scanning technologies before sending you the list of payments for that period.

Depending on your requirements, your provider might create a tailor-made solution for you or offer additional services. For example, there are property management or healthcare lockboxes with unique workflows, although they generally resemble the wholesale model.

2. Lockboxes aren’t always secure

There are a few items to consider here. First, because you’re adding an intermediary, sensitive customer data is being exposed to more people. Even if that third party is a bank, you need to be certain that their staff can handle all data in a compliant fashion.

In addition to this, since checks are a paper-based method of payment, processing continues to be mostly manual. This leaves the operation open to both human error and fraud, especially since most banks use new staff or outsource lockbox processing. When you consider that anyone can easily make a counterfeit check with lockbox information, the potential risk is very real.

These issues leave you and your customers extremely vulnerable.

3. Lockboxes don’t deeply impact back-office operations

While you may speed up your process by a couple of days with a traditional lockbox service, you will still need to devote time to data entry once your payments list comes in. Your team will need to manually reconcile all checks and add notes into your ERP. While some lockbox services may scan your checks to provide electronic processing, you’ll still need to add these scans into your system and match them with the correct invoice.

4. Lockbox timing is still slow

Furthermore, lockboxes are slow. Since lockbox systems are still based on the post office, you’ll still need to wait days for the mail – and your revenue – to arrive. On top of that, you also need to wait for the bank to process your payments. So, before you even get the check information to your back office, you’re still spending a long time waiting for the payments to come in.

5. Your customer’s AP department actually doesn’t like checks

Still, perhaps the biggest factor to consider is that many AP departments are abandoning check payments altogether. They are often inconvenient and cumbersome for your customers, too. B2B check usage has plummeted since 2004 – when they were at 81% of transactions – to 42% in 2019. Meanwhile, ACH and bank wires continue to attract B2B accounting departments.

This means that while your lockbox can be useful in the short term, it only handles check payments. And this can pose a problem with AP departments that prefer real-time payment options.

So, with these five facts in mind, it’s important to ask yourself: when you’re using a traditional lockbox, are you throwing money at a quick fix rather than investing in a long-term strategy for your company?

Meet Smart Lockbox

When we look at lockboxes today, we can definitely see their inefficiencies. At the same time, it can be difficult to disincentivize check payments with ERP systems alone. So, how can you make it possible for your AR department to transform paper check processing into a next-gen payment system that saves you both time and money?

You may decide to opt for Smart Lockbox, a new product that converts all paper check payers into a digital workflow. At Paystand, you can automate your process by sending an email with choices for digital payments. This helps in two ways. First, you can convert some customers into digital payers, which means you get paid in real-time. Secondly, everything from the customer’s payment to reconciliation and matching is automated. In other words, your time lag for processing payments is virtually non-existent.

Here is an example scenario based on the Paystand model:

  • Someone from your customer’s AP receives your invoice via email.
  • When she clicks “pay now,” she is given a digital web address.
  • At this address, she can pay via eChecks, ACH, debit cards, credit cards, or electronic bank transfers.
  • She chooses her payment method, saves it, and moves on.
  • You receive her payment immediately, and the system reconciles it.

Digital lockboxes remove intermediaries and fees, and they significantly reduce the chance of human error. Furthermore, since Paystand uses a tokenized security system, you never touch sensitive user data. And, to make it even more convenient for your accounting team, you can integrate Smart Lockbox with NetSuite.

Ready to learn more? Book a demo for a customized walkthrough. We’re happy to help you with any questions you might have.