The Advantages of Digital/Electronic Lockboxes & Modern Billing Portals

Mar 14, 2017 by Kenzie Earle

In our last article on traditional lockbox services, we learned that though it’s an antiquated method, traditional lockboxes are still the dominant way enterprise businesses transact. There is $550 billion lost while businesses continue to transact manually with other businesses via paper check. You don’t see people clutching their rotary phones after being offered the brilliance and convenience of an iPhone…after learning a bit about what Digital (aka Electronic) Lockboxes offer, you will understand why it’s a payment solution that is finally gaining traction.

What is a Digital Lockbox Service?

A Digital or Electronic Lockbox service is a virtual holding terminal for your business to business payments. Essentially, it's a trusted third party payment system where all transacting can be done from behind your computer screen. After integration with your chosen technology, you can then offer multiple accounts receivable options to your vendors/client base including ACH, eCheck and credit card. Moving forward on a monthly basis, you can even set them up with scheduled payments or manually charge the same method of payment from the previous month. As a payor, you can remit payment from any business that has integrated with a SaaS digital payment solution. This means no manual processing – completely eliminating paper check.

How do Digital Lockbox Services Work?

As a payee, you integrate with your chosen SaaS system. After receiving your code that gets added onto your site, you can then offer any type of payment option - as mentioned above. With some technologies, you can even integrate with your CRM system, tracking how much has been paid and how much is owed on an account – you can usually track that same information in the dashboard, where you can track transaction history and link exactly what payments are coming from where using custom reporting. In some cases, even reimbursement has become a one step process. Carefully honed technological advances in the field are also making leaps to avoid fraud or payment offered that’s not backed by sufficient funds. When the payor is using ACH - a portal into their bank account that requires their login credentials – the payor cannot select an account to pay unless the funds are on file, sufficient and available. This digital payment solution that the FinTech industry is a proud advocate for, is one that they also continually hone and add to, offering an approach is not only playing for team-convenience, but also aimed to significantly lower the cost of transacting in hopes that the concept of a paper check will eventually be mute. In the previous article, mail float, time to cash and DSO were all mentioned as pain points in paying by paper check, A Digital Lockbox offer a plethora of financial and economic pros that yields efficiency in any industry that it has been used in. Which leads me into my next segment …

The advantages of Digital Lockbox Services:

Digital Lockbox Services have all the use cases of a physical lockbox service without the hassle. They are designed to make it quick and easy for your customers or vendors to make electronic payments. Listed below are just a few of the top advantages of a  Digital Lockbox Service.

  • Variety of payment options. **You can offer your client/customer base and/or vendors all the payments options. As mentioned, you can also offer scheduled payments for added convenience.
  • Eliminates mail float. **Mail float is a term for the time required for a check payment to travel from the payer to the payee through the postal system. Due to the fact that digitized payments are making the paper check an antiquated payment option, mail float and its list of cons are no longer an issue.
  • Use cases of a physical lockbox but no manual hassle. **You are literally receiving all of the convenience of a service that was previously used to help improve the receivables process but had the downfall of the time and margin for error that manual labor presented.
  • Service expenses reduced. **Many FinTech companies will do their best to reduce the transaction cost so that valuable margin isn’t being lost. In many cases, going digital with your payment options will even end up being more inexpensive than hiring the bank to assist with their Lockbox Service.
  • Funds are verified. **Fraud is nipped in the bud! Digital Lockbox Services have the ability to verify that funds are on file before your payor initiates the payment. You no longer have to wait on the check to hit your account, only to find that it has bounced – to add insult to injury, you are slapped with the fees of that faulty payment option.
  • Easy payment trail. Every transaction is tracked in your dashboard and in your CRM if you choose to opt into that level of integration.
  • Easy Integration. **In most cases, you are looking at extremely simple integration; a few lines of code are required to be placed on your site in order for the payment portal to be set up and be live.

Disadvantages of Digital Lockbox Services:

  • SaaS can be pricey. **Software as a service can potentially be a cost that digs its elbows into your ROI. It is also not a service that you want to sacrifice quality for pricing over.
  • Technology can fail us. **Though a rare occurrence, technology has been known to fail us before. Accepting funds and putting a third-party business in charge of keeping track of those funds as well as being responsible for moving money is technically a risk…one with very low possibility for repercussion, but still there.
  • Old dogs don’t learn new tricks. Though many clients are likely to be enthusiastic about the convenience factor of a new billing portal, there is a potential for a loss of clients that are stuck in their ways and are partial to using paper checks.

Evolving from a Digital Lockbox to a Smart Lockbox

The next evolution in lockboxes is Paystand’s Smart Lockbox. It was created to help finance teams transition away from the old style lockboxes and digital lockboxes lacking integration with ERP systems to a fully digitized AR experience that simultaneously optimizes efficiency for remote AR teams and significantly reduces accounting overhead. Read more about Paystand's Smart Lockbox here.