Lockbox Studies
By Michael C. Dennis, MBA, CBF

Many companies use lockboxes or lockbox networks to accelerate deposit of payments from customers by reducing mail float, as well as processing float. A lockbox network is a mechanism that allows a financial entity such as a bank to collect and deposit payments on behalf of its customer, the creditor. The primary goal of lockbox systems is to accelerate the availability of funds to the creditor. A lockbox study can help a creditor company to decide how many lockbox locations it needs to have and where those lockboxes should be located. As a general rule, a company should have a lockbox study performed if or when:

• It currently does not use any lockbox system.

• The company sells nationally but has only one lockbox location.

• The creditor company is using a multiple bank network rather than a network operated by a single bank.

• The current lockbox network locations were selected without the benefit of a formal lockbox study.

• It has been at least two years since the last formal study was completed.

• The creditorís customer base has changed significantly over the last two years.

• The creditor opens a large number of new accounts each year, or has recently completed a merger, an acquisition or a divestiture.

• The company has recently expanded into new geographic markets

• The lockbox bank has been acquired and/or has closed one or more of the lockbox locations used by the creditor company.

Clearly, in some cases the number and location of lockboxes in the existing network is adequate. In this scenario, a lockbox study is likely to recommend changes involving which customers are asked to remit to which lockbox. A study might recommend a more comprehensive change in which lockboxes are added or deleted from the network, and customers are reassigned based on the location from which customers currently send payments. In certain cases, a complete overhaul is required. It is conceivable that all of the lockboxes the current network will be closed, and an entirely new configuration will be established. In this scenario, every customer would be asked to remit to a new lockbox address.

Sometimes, the most difficult task for the credit department involves convincing customers to remit payment to the companyís lockbox. Why? A charitable explanation would be that the customerís accounts payable department is too busy to change the remittance address in their computer system. Another possibility is that customers are reluctant to remit payments to lockboxes because they realize that making this change will reduce payment float.