SPECIAL REPORT: YEAR-END UPDATE
By Brad Kuhn
The (surprisingly) bright future of lockbox
L
ockbox payment services,
like the paper checks they were
created to process, have defied the
predictions of pessimistic pundits,
who were sure they would go the
way of personal passbooks.
After all, what future could there be in a business model based
on picking up checks at the post office and depositing them,
when the whole world was switching to electronic payments?
To be sure, today’s successful automated lockbox operations
bear little resemblance to their analog ancestors, which focused
primarily on moving paper faster. These days, the goal is to
streamline payment processes and provide treasury with the
information it needs to better manage cash and apply payments.
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Financial Ops Fourth Quarter 2013
Lockbox operations do this by consolidating electronic and paper
payments into a single data stream, eliminating exceptions,
and integrating with client enterprise resource planning (ERP)
systems.
If that sounds more like inbound accounts receivable automation
than mere lockbox, you’re right.
“Lockbox services are now being positioned as a comprehensive
receivables solution,” says Robert Mancini, senior analyst
with Celent, a global IT research and consulting firm. “Your
traditional lines of products and services from 20 years ago are
getting blurred.”
What’s happening
Paper-based payments. Businesses have been slow to let go
of paper checks. Although the annual volume of paper checks
processed through the banking system today is roughly half
that of a decade ago, most of that decline has been on the
retail side, as consumers embraced various forms of electronic
payment. About 70 percent of corporate payments are still made
by paper check. That’s plenty to sustain automated lockbox
operations, most of which are owned or closely affiliated with
global banks. In fact, according to Celent, wholesale lockbox
has experienced mid-single-digit revenue growth during the
past decade.
Remote deposit capture. The ability to scan and deposit
checks electronically via computer or mobile device was once
considered a threat to the lockbox. But it has turned out to
be an ally, allowing geographically dispersed companies to
electronically redirect “stranded” payments to a lockbox from
far-flung locations without costly delays or shipping charges.
Improved technology. Another one-time threat that helped
lockbox providers keep pace with greater customer expectations
was improved scanning and sorting technologies. Instead,
these have improved throughput and accuracy, while enhancing
informational reporting through intelligent data capture and
opening the door to consolidated payment streams, saving
customers both time and money.
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Future of lockbox (Continued from Page 30)
Robust wholesale fees. Companies still pay a median of 42 to 60
cents per item, compared with 14.5 cents for retail transactions,
according to Ernst & Young’s 2012 Cash Management Services
Survey.
Customer retention. Wholesale lockbox relationships are
critical to business and therefore critical to banks that cater
to business.
What’s next
Bob Lund, chairman and CEO of eGistics Inc., a provider of
cloud-based document management solutions, predicts lockbox
operations will continue to expand their footprint to include
accounts payable, procurement, and accounting, opening the
door to a $1 trillion market.
the lockbox processing. That number was 24, compared with 22
in the 2011 survey.
Third-party services are likely to become even more popular
as customer expectations for lockboxes increase and older
lockbox systems approach the end of their life cycle, says
David B. Johnson, president of outsourced lockbox provider
RP Solutions.
“Evolving technology provides an opportunity for high-volume
lockbox vendors to provide a broader range of services more
efficiently than an in-house operation — particularly when
it comes to mixed-mail processing,” Johnson says. “Today’s
systems can manage all payment types — electronic and paper
— and consolidate them into a single data stream.”
External forces
That’s not to say everyone is going to stay and play. According to
the Ernst & Young survey, more than half of 44 surveyed banks
offering wholesale lockboxes said they outsource some or all of
In addition to the internal forces shaping the future of lockbox,
external forces are also at work. Topping the list:
Changes at the post office. Paul Diegelman, senior vice
president and practice manager at TransCentra, a leading
provider of lockbox services, cites changes expected next year at
the U.S. Postal Service — specifically, a proposal to close and
consolidate mail-processing centers nationwide — as a major
unknown.
“There is incredible uncertainty as to how long it will take for
mail to get from point to point under the new system and what
that will do to days sales outstanding, receivables balances,
and cash flow,” Diegelman says. “Companies may find that they
have a lockbox in, let’s say, Chicago, and after these changes
they may need to add an additional processing site in someplace
like Charlotte.”
Changes in technology. Growing comfort with secure and
affordable cloud-based business services is prompting more
companies to consider outsourcing the automation of some
accounts payable and accounts receivable processes or making
functional enhancements to in-house solutions.
Given that billions of bills are paid by check every year, it’s important that your lockbox provider keep up with
new technologies and process advancements — such as industry-specific services for healthcare and property
management payments. If a provider isn’t introducing new services, then it’s likely not investing in the business and
not releasing the latest efficiencies to its clients.
Changes in communications. Throughout history, business
advantage has been on the side of those with the best and most
timely business intelligence. In the early 1800s, the Rothschild
family established pigeon lofts throughout Europe and used
homing pigeons to send and receive information ahead of the
competition. Payment lockboxes were introduced in 1947 in
America to reduce check-processing times and accelerate cash
flow. In the post-digital age, companies with the best controls
and visibility over treasury operations have a distinct advantage.
As a result, lockbox providers are moving toward low- and notouch processing, and consolidated single payment data files
accessible via a portal or an interface with an ERP system.
2. Would my business benefit from remote deposit capture (RDC), and do you offer it?
Convergence
Leveraging lockbox
4 questions to ask your provider:
1. What new technologies and services do you offer?
Depending on how many check payments you receive, and where these payments are received, RDC can be an ideal
complement to or even a replacement for a conventional lockbox.
3. Will you process all types of payments, or just checks?
Check payments from consumers are declining rapidly, while the percentage of check payments from businesses are
fairly flat over time. With electronic payment options becoming more popular, many lockbox providers are now set up
to accept all forms of payment and consolidate them into a single data stream.
4. Have your mail collection points been updated to reflect new U.S. Postal Service processing methods and
time frames?
The financial challenges at the Postal Service are well-known, and changes to its operating plans, timelines, and
commitments will continue into 2014 and beyond. At the same time, as interest rates begin to rise, the cost of having
your collectible cash in the mail stream is increasing. Companies that collect a significant portion of their receivables
via paper check should work with their lockbox provider to ensure their collection points are in the right locations.
Source: Paul Diegelman, TransCentra
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Financial Ops Fourth Quarter 2013
With all pundits pointing to a digital future, and scanners and
software at the ready to convert and consolidate payments from
all sources into a single data stream, AP and AR vendors of all
stripes are expanding their service offerings, reaching for as
much fee income as their customer relationships will allow.
Lockbox services, once primarily the province of banks, are
increasingly offered by third-party vendors that are able to
provide customers with a broadening spectrum of transaction
services, including AP and AR functionality.
Less than five years ago, even American Banker magazine
proclaimed that lockbox services were on the wane. But rumors
of their demise appear to be exaggerated. Today’s lockbox leaders
are thriving and poised to expand. And although it’s too early at
this juncture to predict how they will do, they have at least a
fighting chance.