Lockbox system
With a lockbox system, a company maintains special post office boxes, called lockboxes, in numerous locations around the country. Invoices sent to customers contain the address of the lockbox nearest to each customer as that customer’s remittance address, so customers send their payments to the closest lockbox (checks and remittance advice).
The Company then authorizes a local bank or banks to check these post office boxes as often as is reasonable, often several times a day, given the number of payments that will be received. Because the bank is making the collection, the funds that have been received are immediately deposited into the company’s account without first being processed by the company’s accounting system, thereby speeding up cash collection.
Thus Lock-box system may be a valid alternative of the central-collection system, because it accelerates cash-inflows of the company’s cash, to better invest it and realize a return.
The Company receives reports from the bank(s) and copies of the items received so it can post the receipts to the correct customer accounts.
Having several lockbox locations reduces the time a payment is in the postal system and also reduces the time from receipt to deposit in the company’s checking account So a lock-box system accelerates the inflow of funds. Lockbox service is often used along with concentration banking.
Notes:
- For a company to benefit from a lockbox system the benefit should exceed costs.
- A lock-box system is a process by which payments are sent to a bank’s mailbox, which is checked during normal post office hours so it does not provide security for late night deposits.
- The use of a lock-box system entails sending checks through the mail to post office box. Thus, it does Not reduce the risk of losing checks in the mail .