Lockbox Account

Definition

The term lockbox account refers to a service offered by commercial banks that allows for the efficient collection of money from customers.  The lockbox process starts with payments mailed by customers to a post office box owned by the company.  The bank collects payments from the post office box and deposits the money directly into the company's account.

Explanation

Also known as remittance processing, a lockbox simplifies the collection and processing of checks received from customers.   They are frequently used by companies operating in multiple locations, and are popular in urban areas.  Lockbox accounts allow companies to process payments within 24 hours, thereby accelerating cash collection.

The end-to-end process consists of the following steps:

  1. The company enters into an agreement with a local bank or financial institution for lockbox services, and rents a post office box near a branch office.
  2. The company authorizes the bank to access the contents of the box.
  3. Customers remit payments to the company, mailing the money owed to the post office box number.
  4. A bank employee visits the post office at least once each day, collecting the remittances.
  5. The bank processes the payments and deposits the money collected directly into the company's savings account.
  6. The information associated with these transactions is provided to the company.  This can include customer name, invoice or account number, amount remitted, and the date of the transaction.

Financial institutions have the capability to process large volumes of payments.  High speed machines can open mail, separate checks from coupons, scan images, and use optical character recognition to process tens of thousands of payments per hour.

The transaction costs for lockbox services can range from as much as $1.00 per remittance processed to less than ten cents.

Related Terms

current assets, cash, electronic funds transfer, travel advance, imprest account, cash over and short, bank overdraft