Businesses use a lockbox provider to speed up the collection of mail-based payments from its customers, thus improving cash flow. In addition to electronically depositing those payments, a lockbox provider can also attribute those transactions to specific customer accounts. This enables the business to automate a large chunk of their receivables process.
It goes without saying that a small business does not have infinite human capital. Many small businesses focus on manufacturing a product or providing a service. The logistics of processing the consideration for those products and services tend to happen when the business has time. Depending on the payment volume, the payment processing and reconciliation process can get quite labor-intensive. Below a typified list of the steps involved.
- An employee of the small business goes to the local post office to empty the PO Box containing customer payments
- Back at the office, they open a stack of envelopes and individually remove and examine each envelope’s contents
- The employee manually updates customer payments, one at a time, in the accounts receivable system
- Finally, the employee makes a trip to the bank to deposit all the customer checks into the businesses’ operating account
Ideally the above process should happen every day, but realistically it does not. Perhaps the office manager does it when they get a free minute. It could be the office manager schedules a set time during the week to catch up on receivables. Maybe the weekend is the only time the business owner finds the spare time for the accounts receivable process. Regardless of how frequently, in all likelihood there will be times when a number of payments will sit in the drawer of someone’s desk, unprocessed. This is a problem because a stack of uncashed checks isn’t working for the business. In simpler terms, by not prioritizing payment processing, the cash flow of the business artificially decelerates. Over time, this can adversely impact things like accounts payable and payroll.
This scenario gets to the heart of the benefits of relying on a lockbox service for your payments. When you use a lockbox service, the remittance process happens, unfailingly, every day the post office is opened. Moreover, if the lockbox provider guarantees same-day processing, cash flow from operating activities is effectively maximized. All without expending any human capital on the part of the business. The lockbox provider can even assist with payment reconciliation by sending a daily AR file to post to the accounts receivable system. All of this frees up the business to focus more on revenue generating activities, and less on the administrative aspect of those activities.
If these events sound familiar to some of you, a lockbox service may be the way to go. Contact us, and we’ll be happy to go over options to enable your business to shift remittance processing out of the office once and for all.