There are many businesses that find a need for a bank service known as a lockbox. It is a way to facilitate payment by post where the money goes to the lockbox instead of office address. In some ways it is similar to a post office box, but in this instance it is the bank that has control over it. There are many great advantages to such a system and this is why it is so popular with many businesses.
How a Lockbox Works
The lockbox is usually used by businesses that have customers spread out over a wide geographical area. It is also chosen by companies that don’t have time to rapidly process payments that are sent by post. What happens is that instead of the customer sending payments to the company directly they instead send them to the lockbox. The client does not actually have a key for this lockbox, but instead the bank uses a courier to deliver the payments directly to the bank. Depending on the needs of the client these boxes can be checked up to once a day. The bank then processes these payments and enters the money into the client’s account.
The Advantages of a Lockbox
There are undoubtedly a number of good advantages of the lockbox system and this explains why it is quite popular. Here are just some of the reasons why a business might choose this option:
- Processing payments can be time consuming, but by using a lockbox service it means that this work is done by somebody else. This is perfect for those businesses that are short of time or the expertise for such work. It frees up employees to focus on more productive work.
- This type of system increases the speed of cash flow. The fact that the money is being sent directly to the bank means that it will get processed a lot faster. It can be a real problem for businesses when they need to wait a long time for payments to process and become available as cash; this system ensures that everything occurs a lot faster.
- Banks have much tougher controls over employees than most businesses. This helps to reduces the chances of fraud occurring.
- It is usually a lot cheaper to choose a lockbox service than to pay employees to process checks. This makes it a cost effective solution.
The Disadvantages of Lockbox
There are a few disadvantages to this type of service that are worth considering:
- Although banks work hard to combat fraud it still occurs. Those employees who deal with the lock boxes tend to be the least trained and arguably the least reliable. The fact that many couriers get poorly paid may lead them copy payment details which can later be used for fraud.
- This type of service needs to be paid for and the costs will need to be assessed. In most cases it will work out cheaper than paying an employee to do the work but not always.