Lockbox Services
How to access your money more quickly
One of the most common and frustrating problems growing businesses face is tight cash flow. To make funds more readily available, you can use a lockbox service to reduce the "total float" of your cash.What's "float"? Once you deposit checks you receive from customers, you have to wait for them to clear. As the days pass, you're losing potential interest from those funds. Depending upon your cash reserve, you may even have to delay payments to suppliers until those funds are available. That delay — the sum of the "mail float" and "availability float" — is called the "total float." Some businesses can shrink the delay by using a lockbox, which can help you:
- Access needed funds more quickly.
- Let someone else process and deposit your checks, freeing up your time.
- Earn interest on payments that would otherwise be waiting in the mail.
Know the process — and the lingo
With a lockbox service, customers mail payments directly to a post office box. A bank employee collects those checks — often several times a day — and processes them electronically so that funds are shifted from the customer's account to yours more quickly.
Try: See an example of the process at M&T Bank. Customers might ask why the payment appears as an ACH (Automated Clearing House) payment on their bank statement, so be ready to explain it.
Determine whether you are a good lockbox candidate
Restaurants and other businesses that receive all of their revenue at a retail location make poor candidates for lockbox adoption. What's more, you need to look at the size of orders that customers place and pay for by check; organizations that perform lockbox studies typically suggest that if you receive payments of $1,500 or more by mail, you could benefit from such a service.
Try: For a bank to complete a lockbox study, you need these four things listed on market researcher PhoenixHecht.com's FAQ: your current deposit location, a sample of payments received (with dollar amount and Zip Code of origin), the length of your typical billing cycle and your cost of capital (how much interest you're losing by not having access to funds). Also see lockbox studies.
Contact banks and other providers for details
Many, if not most, banks provide lockbox services.
Try: Lockbox service providers include Bank of America, Center Bank, CitiBank, FirstBank, Independence, North Shore Bank, Ocean National and Scotiabank. Don't forget to contact your own bank and ask for price and benefits as well. Some financial-services firms, such as Merrill Lynch, Emdeon and RemitStream, also provide lockbox services.
- Ask about set-up and monthly lockbox fees, and make sure they don't defeat the purpose of signing up for a service in the first place.
- Decide whether other employees need access to the lockbox or whether you'll monitor all transactions associated with it.
- If you plan to launch a nationwide advertising campaign or are branching into new geography, consider setting up a lockbox ahead of time.
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