In the past one means to speed up your collections by a little bit and help improve your cash flow was to get a lockbox. A lockbox would be a box where your customers would send their deposits to. This could save you a day or so time in the processing of the receivables into your bank account. There would be extended hours where it could be processed and you could get that same day notice of the deposit into your account. It might still take a day or so to get the deposit to clear, but at least you started the process a bit sooner.

The benefit is saving time compared to having the checks come to your office. Then they have to be written up. Then somebody takes the deposit to the bank, and then the bank processes it and then you get credit for it. Now, your lockbox can help save some of the floats on the money, but it also could save you some of the hassle of going to the bank and the time required to process the deposit manually.

However, a couple things are happening that may take a little bit of the benefit off of the lockbox. Because of this it might be worthwhile to consider other alternatives.

One thing that can be happening is that deposits are getting cleared faster. You’re getting faster access to the money. So you might not be losing as much time on the float by having the checks come to your office.

However, I think the biggest thing that is happening now is the availability to do virtual bank deposits. This is where the checks would come into your office and you would process the check there, but now instead of having to run to the bank, you use a small scanner that’s in your office. You scan the checks in and then transmit the checks electronically to your bank. This could even work better for you because one now you’ve done the scanning work for the bank, instead of them having to do it in their bank office. And because it’s transmitted electronically, you could, in essences, perhaps, be getting the same timing as you might have been right from a lockbox. So with the new days of virtual deposits, it’s worthwhile to reexamine your lockbox or you might have multiple lockboxes depending on the regions of the country. The lockbox might not be as attractive anymore.

But some will depend on your geographic distribution. Sometimes where a lockbox can help is say if you get a lot of checks coming in from a different part of the country, you could have a lock box to that area and cut down on some of the mail time from there.

These are good questions to bring up with your bank. And if you’ve had the lockbox for a while and haven’t looked at the viability in a bit, get together with the cash management people at your bank and see what they have to say. Check out the new numbers and see if it still makes sense or if a virtual deposit or other approach is more feasible now.

Jon Paul, MBA, CPA, CMC, CM&AA

President, Value Added Finance Resources
Bringing new insights on results and maximizing company value