Lockbox

A lockbox is a check collection system operated by a bank. The bank picks up the mail, processes the deposit and transfers information to the company. The bank maintains post office boxes for receipt of payment at a central post office. Many banks have a unique zip code to speed delivery. The bank collects mail several times a day. Checks are removed from envelopes and either photocopied or recorded as a digital image, encoded, endorsed and entered into the clearing process. Because the bank can enter checks into the clearing system even when the bank is not open to the public, processing and availability delay can be reduced. Check and deposit information, along with other remittance data and any return documents, are sent to the company after the deposit has been processed and the checks are entered into the clearing system.

Two major types of lockboxes are offered by banks:

1. Wholesale lockboxes are used for processing a moderate number of large-dollar remittances, usually from businesses.
2. Retail lockboxes are characterized by a large number of relatively small-dollar remittances.

The economic benefit of using a lockbox system involves a tradeoff between the freeing of funds by faster collection and the cost of dealing with a bank or third party:

• Mail time can be reduced by selecting a lockbox close to the customer's mailing point.
  
• Processing time is reduced because deposits are entered even though the bank is closed.
  
• Availability time is reduced because checks clear faster when the deposit point is closer to the bank on which they are drawn.