What Is a Lockbox Payment?

Constant cash flow is the most significant aspect of every business. But depositing cheques is always a complicated task for small businesses. It can be painful for the businesses to go to the bank to deposit their cheques. What if you need to deposit your cheques after the banking hours? Here the lockbox payment comes into the picture. Now you are thinking what a lockbox payment exactly means.

Lockbox payment is a service provided by the banks to the businesses for collecting payments from their customers. When a business uses a lockbox service, it sets a specific P.O box number for accepting payment from its customers. Then, the bank will collect the cheque on behalf of the company, deposit the cash in their accounts and send an update on their payments.

In this blog, we will explore in detail how lockbox payment works, its advantages and how an electronic payment system can help you with it.

How does lockbox payment work?

Lockbox payments are very helpful to the businesses who receive a huge number of payments. It allows businesses to efficiently manage payments and collection processes. By utilizing this facility banks and finance companies can establish multiple channels of accepting payments from the customers.

Under the lockbox payment system, the startup will establish a post box to get payments from the customers. The bank sends all its cheques to the post office and communicates with its processing centre. Then these cheques get scanned and stored digitally, payment information gets captured, and the cheque goes into the clearing. The lockbox’s data gets backed up at the end of the day for the storage purpose.

Benefits of lockbox payments

Submitting cheque into the lockbox is an easy way for the customers to make payments. With the lockbox, the customer’s can ensure a reliable completion of their payments and also they can quickly get their cheques cleared. Here are the essential benefits of using lockbox payments into your business:   

1. Reduces mail float

Before understanding how lockbox payment can reduce the mail float for you, let us understand its meaning first. ‘Mail Float’ means the time required for a cheque to travel from the payer to payee via post. The payers are highly aware of this thing. That is why they use the term ‘the check is in the mail’.

A lockbox can decrease the mail float in two ways: First, the postal time becomes faster as you have the geographical location of your post boxes at your customer’s location. Second, the lockbox can decrease the processing time of cheques by directly depositing the money to the bank. Also, the bank staff can ensure the same day payment processing in lockbox payment. 

2. Easy payment deposits

Lockbox payment services offer a great speed and efficiency in the payment deposits. By using lockboxes, the companies can save their costs and time for collecting and processing the deposits. Now you do not need to visit your bank personally to deposit your cheques, just post it in your nearby bank approved postbox.

3. Increases employee efficiency

As banks are processing the lockboxes at a higher scale, their efficiency will increase as they do not need to get the help of their staff. Now, there is no need to prepare depository slips or maintaining physical records. Thus, the banks can maintain an easy flow in processing the cheques.

Now the banks do not need to hire additional staff for processing the payments. Also, the burden of the existing employees can get decreased as they have to do lesser tasks.

4. Decreases accounting errors

Auditing of accounts is like the worst nightmare for any business. Because no matter how accurate your finance records would be, there can always be an error with it. But now you do not need to worry as lockbox payments can reduce these errors by streamlining your daily transactions.

After the bank sends the cheques to its processing centre, it deposits them directly into the customer’s account. Banks can capture the payment information of the businesses and then they can transfer this information to the account receivable.

A lockbox system allows the banks to back up their financial data. It will reduce the accounting errors on your ledger as the bank is doing the same for you. Now you do not have to rely on someone for manually rectifying your errors.

5. Faster payment access

Speed is one of the major advantages offered by lockbox payments. Every time it increases the speed of payments. Banks uses a special zip code to speed the delivery of cheques in the postal system. Also, the banks can process these payments even after their working hours. Thus, there is no limitation of time in the transaction.

Also, bank checks their lockboxes daily. This means that the cheques will get deposited in the payee’s account on the same day. Thus, the businesses would get a faster payout of their money. 

How electronic payment services can help lockbox payments?

Electronic lockbox payments have replaced the traditional lockbox payment method. Today, many banks have started offering digital lockbox services. In the electronic lockbox service, your cheques get scanned by the banks so that you can view them online. Also, you can see the images of your payments on the same day when you have posted them in the post box.

If you are looking to integrate electronic payment services to accept lockbox payments from your customers, then you must hire software development team. You can also consider outsourcing your software development to remote developers. The success of lockbox payment depends on the size of your payments. 

Lockbox payments provides the payment businesses with a lot of benefits which we have discussed in this blog. Also, it provides a great speed and convenience to the customers. Furthermore, lockbox payment systems have reduced the handling time and the processing costs for the business. Banks offering such services provide images and documents to the business owners for viewing it easily. 

I hope this blog has provided you with a clear idea of lockbox payment. Want to add something? Feel free to share your views. 

Author Bio:

Nikunj Gundaniya, Product manager Digipay.guru, one of the leading fintech solution providers, which provides mobile finance application development services. He is a visionary leader whose flamboyant management style has given profitable results for the company. He believes in the mantra of giving 100% to his work.