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LockBox Banking-Pro & Con

Is Lockbox Banking right for You?

  • Do your customers mail payments to you?

  • Are your customers dispersed across a region or the country?

  • Do you hold checks over a day or two because your staff doesn№t have the time to process them?
  • If so, you may want to consider the benefits of automated lockbox processing services.

    Using lockbox banking is a cash flow improvement technique in which you have your customers' payments delivered to a special post office box instead of your business address.

    The difference between this special post office box and a regular post office box is that only your customers' payments are delivered to the box. Instead of you picking up the payments, your bank's couriers have a key to the post office box, and they remove its contents and deliver your customers' payments to your bank. Your bank opens the payments and then processes the payments for deposit directly into your bank account. Depending on the nature of your business, the contents of your lockbox can be removed and processed once a day, or more often if required.

    You can establish lockboxes in several different post offices or cities. A basic rule is that your lockboxes should be set up nearest to your customers to reduce the amount of time between your customers' mailing their payments and the deposit into your bank account.

    Lockbox banking accelerates the payment and deposit portion of your cash conversion period in two different ways. First, lockbox banking cuts down on any postal delays caused by having your customers' payments delivered to your business address. Mail delivered to your place of business entails some extra sorting so that your mail gets into the hands of the correct carrier, not to mention the added time it takes the carrier to actually deliver it to your address. Second, using a lockbox shortens the amount of time necessary to process your customers' payments, by having your bank open the payment envelopes and deposit them directly into your bank account. Since the payment processing is done at the bank, your customers' payments are received and deposited all within the same day. Doing this work yourself can delay the deposit of the payments anywhere from one to two days depending on how long it takes you to process your customers' payments for deposit, and to actually make the deposit at the bank.

    Lockbox banking is typically used by businesses that receive payments from numerous customers. Your utility companies and local cable TV franchises are two examples of businesses that are likely to be using lockbox banking. Even city and county governments are using Lockbox banking in the collections of taxes. Don't shy away from lockbox banking just because your business isn't as large as your local utility or cable TV franchise. Today's increased automation in payment processing has allowed banks to reduce the cost of their lockbox banking services enough to make it economical for businesses of any size. Since most banks will customize their lockbox banking services and costs to fit your specific needs, contact your bank for more information.

    Sample of Lockbox process

    Lockbox Problems:

    In many financial institutions, the individuals in the lockbox area are the newest employees or are part-timers. Some of them are poorly supervised, poorly paid, not well-trained, and are vulnerable to temptation, and that has led to the latest fraud wave. Authorities have uncovered a large number of instances where employees working in lockbox areas have been paid a fee by criminals, typically $50 per copy, to turn over copies of the checks sent to the lockbox. The copies equip the thieves with everything they need to create counterfeit checks -- account holder's name, address, phone number, account number, bank name, bank routing number, check number and an example of an accepted signature on the account.

    This scenario radically improves the odds in favor of the counterfeiter and against the bank. By having access to a large number of accounts on which to counterfeit checks, the criminals are able to increase their chances of avoiding detection for a number of reasons. First of all, if they keep the amounts relatively small, their fraudulent activity

    probably will not be discovered until after the customer receives his next bank statement, plus the bank is not likely to spot the fakes because the amount will be below its cutoff for sight examination and, even if the bank examines the check, the signature might be identical to the legitimate one if the criminals use good scanning equipment. Second, many customers do not promptly examine their bank statements, so some counterfeits may go undetected for months. Third, even when the counterfeits are reported, it would take some real detective work to determine that the counterfeits on separate accounts are, in fact, related. Fourth, even when the pattern is spotted, there is no good way to identify future fakes. The only sure method for stopping the losses is to have customers whose accounts were compromised close the accounts and open new ones.

    Prior to this new twist on counterfeit check creation, thieves would customarily make several duplicates of a particular check, such as a payroll check on a major corporation. Once the activity was discovered, the authorities could put out a warning bulletin to let merchants and banks know that counterfeit checks on that company in a particular amount had been uncovered and everyone could watch out for those particular checks. With this new method of gathering information to produce counterfeits, thousands of unique items could be produced, leaving no pattern to follow.

    How do you prevent this type of crime?

    • Monitor lockbox operations more closely;

  • Locate lockbox operations far from a photocopy machine;

  • Make random, unexpected visits to the lockbox area;

  • Be careful who you hire;

  • Be alert to the possibility of fraud; such as when a customer notifies you that a counterfeit item has been paid on his account.
  • What can Lockbox Banking do for you?

    • Faster access to your funds

  • More timely receivables information

  • Customized Remittance Processing

  • Greater Remittance Processing

  • More Efficient use of your office Staff

    • Lockbox processing is a cash management service provided by banks to their corporate customers. Lockbox services are designed to accelerate the collection and deposit of check payments, sent with accompanying remittance document(s), through the mail.

  • Lockbox services are provided almost exclusively by large banks. Of a total of 4.1 billion checks processed by U.S. banks in lockbox operations in 1994, 75 percent were processed by banks with over $5 billion in assets, and over 98 percent were processed by banks with over $1 billion in assets.

  • Lockbox is a mature, consolidating banking business. Competitive break-even volumes are rising, and banks are being pressured to either increase their volumes, exit the business, or out source the function. For these reasons, image technology is being rapidly adopted in lockbox processing by banks that continue to provide the function, to achieve higher processing productivity (particularly in retail lockbox) and to provide new image-based services to customers (particularly in wholesale lockbox).

  • Retail lockbox tends to involve higher processing volumes than wholesale lockbox. The leading retail lockbox bank processes about 27 million items per month, while the leading wholesale lockbox bank processes only about 4 million items per month.

  • Intelligent character recognition (ICR), optical character recognition (OCR), and courtesy amount read (CAR) technology are being adopted rapidly for automating the amount entry and transaction balancing tasks in lockbox processing, thereby increasing processing efficiencies and productivity.

  • High-volume retail lockbox systems tend to be tightly integrated, single-vendor solutions from industry providers of high-speed reader/sorter equipment (particularly BancTec and Unisys). Wholesale lockbox, with its lower processing volumes and greater requirement for customized features, is more frequently non-automated, or automated through software provided by independent third-party suppliers, particularly in lower-volume wholesale lockbox operations. don't simply credit the customer's account. Look for any clues about the source of the counterfeit. With the customer's permission, notify your state bankers association and your local clearinghouse and law enforcement authorities.
  • Copyright © 1995-2011, National Check Fraud Center

    Category: Bank

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