Companies can unlock money
faster with a bank lockbox
By Jay MacDonald • Bankrate.com

Good things may come from thinking outside the box, but today's small business owners would be wise to look into one -- a bank lockbox, that is.

A bank lockbox is an address, often a post office box, where payments to your company are sent. There, they are collected, processed and deposited directly by your bank, which automatically posts the transactions to your computerized accounting system or generates a daily activity report, all for a monthly fee.

In the post-World War II boom, it didn't take large national companies long to realize the benefit of using lockboxes to knock a couple days off the "float" and streamline the time-consuming accounts receivable process, thereby hastening money into the corporate coffers.

But if you're like most mom-and-pops, you still observe the daily ritual of opening the mail, posting the checks and then standing in line to deposit them at the bank where, if you're lucky, the actual money will be available within five to seven business days.

Little wonder that savvy small business owners are turning to the new high-tech versions of the venerable lockbox to cut costs and give them a competitive edge. In addition to lifting your accounts receivable burden, today's lockboxes offer powerful cash management, strategic planning and customer service tools previously reserved for the big guys.

Beat the receivable blues
Beating the accounts receivable blues may be the chief reason more small businesses are thinking inside the box these days, according to Maggie Harazin, senior product manager of Harris Bank in Chicago.

"A lot of businesses are looking to outsource things that are not their key competencies," she says. "By doing so, they can redeploy employees into other areas, such as following up with customers on collections. It frees up time to do that and focus on more critical functions."

Today's lockboxes handle higher volumes faster than ever before.

Harris Bank's basic service, which processes up to 100 checks a month for $225, boasts its own ZIP code at Chicago's main post office, which beats even ZIP-plus-four mail to the box. You get mail delivery once a day? This lockbox is emptied 20 times a day, around the clock, seven days a week. Because the bank is doing the processing, there's no waiting to deposit, either. While there is the usual delay for the check to clear the disbursing bank, Harazin estimates that lockbox processing generally makes funds available in 3^1/2 days, shaving one to three days off the float.

Location, location, location
To trim the most time off check processing, your lockbox must be in the right place -- and it's probably not where you think it is, Harazin says.

"You need to locate the lockbox near the concentration of where your customers pay from," she explains. "Not where you are, not where your bank is and not necessarily where your customers are, if they tend to bank elsewhere."

For instance, you may be in Atlanta, with many customers in California, but if those customers pay you from New York banks, the Big Apple is where your lockbox needs to be.

Banks use computer models of mail delivery and check clearing times to determine which of their lockbox sites will do you the most good.

Faster, paperless posting
A modern lockbox account can deliver a daily activity report to you in a variety of ways:

• Automated fax transaction log: A daily accounts receivable summary, including copies of the microline from the check, check balance and payer's name, is automatically faxed to customers who have not yet computerized their accounting system.
• Lockbox data transmission: Posts all deposits electronically into your computerized accounting system.
• Imaging: Takes digital images of checks and all other documents, including invoices and envelopes, and transfers them to your computer via file transfer protocol. It also may be stored as a monthly record on CD.
• Online access: You'll soon be able to view all your accounts receivable activity online at a secure Web site.

The speed at which the day's accounts receivable activity reaches you gives your company a leg up on the competition. For instance, a major client that had previously reached its credit limit may have sent in a payment, which could prompt a call from your sales division. Conversely, if a payment is overdue, your credit department will know within hours, not days.

Lockboxes pay their own way
Speed is vital in managing deposits, says Bob McGoffin, a professor at the Louisiana State University Graduate School of Banking.

"With the lockbox, you get the items cleared so you know when you have good money, which means you can now get into cash management and sweep the excess balances into interest-bearing opportunities," he says.

What's more, banks may lower or even waive your lockbox fees if you choose to put your excess funds in one of its sweep accounts.

Harazin says Harris Bank's lockbox service has grown by 12 percent annually during the past few years, with much of the activity coming from small but fast-growing businesses. She attributes some of that growth to the ability of companies to become national, and even global, much faster than they used to.

"I think it's more advantageous to clients as they're growing and getting customers across the country," she says. "If you sell things over the Internet, you don't have to be a big company to have a national remitter base. That definitely sets you up to be in a lockbox."

McGoffin sees lockboxes as an opportunity for banks and small businesses to both win by playing to their strengths. "It just makes a lot of sense," he says. "Small businesses are just now starting to understand that this really is a management tool and not just a collection tool. As electronics become more and more important, management skills will be at the forefront of whether you're a high-performing business or just getting by."

Jay MacDonald is a freelance writer based in Florida

-- Posted: Dec. 2, 1999