What is Lockbox Banking?

Mary McMahon
Mary McMahon
Mary McMahon
Mary McMahon
With lockbox banking, payments are mailed to a post office box rather than directly to a business.
With lockbox banking, payments are mailed to a post office box rather than directly to a business.

Lockbox banking is a banking service made available to customers of commercial banks. In this type of banking, payments sent to a business are mailed to a post office box instead of the business itself, and bank employees pick up the payments for immediate processing. Turnaround time is much faster, ensuring that payments are deposited promptly. Fees for lockbox banking services vary, depending on the bank and the size of the business. Typically, a flat fee is assessed per month in addition to a per item processing fee.

Postal offices will have larger lockboxes to accommodate packages and parcels.
Postal offices will have larger lockboxes to accommodate packages and parcels.

This method of banking is very secure, which can be a distinct advantage. Bank employees can clean out the lockbox several times a day, ensuring that payments are processed quickly, and usually payments are processed and deposited all in the same day. This prompt processing leaves fewer outstanding checks waiting for processing.

Most banks use automated systems to process lockbox payments rapidly, especially because lockboxes are often owned by companies with large numbers of customers, such as utilities, and it would be unfeasible to hand process all of their payments. These systems scan the checks and enter the data directly, reducing the risk of error. In addition, a complete report of everything that has been processed is generated. This can be sent to the customer in the form of a file which can be dropped directly into accounting software. It also provides copies of the checks which can be used in the event of disputes or customer service issues.

Most people write checks and mail them to a lockbox banking account without ever knowing it.
Most people write checks and mail them to a lockbox banking account without ever knowing it.

Large businesses may have several lockboxes. This is designed to facilitate rapid movements of payments from customers to the business. When a customer drops off a payment at a local post office, it only travels a short distance to reach a lockbox. Bank staffers can establish a regular schedule for checking and clearing in the lockbox so that payments are processed in a timely fashion. By contrast, businesses which wait for daily mail delivery find that checks take longer to arrive and that the processing takes longer because the business has to prepare the deposit and make time to drop it off at the bank for processing.

Not all banks provide lockbox banking. It is usually necessary to have a business banking account with the bank. A business banking specialist can provide more information about a specific bank's lockbox banking and other business services. When looking for a bank to establish a commercial account with, a company may want to ask about services like lockbox banking, even if it won't be used immediately.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments

anon342339

Does anyone knows a good software to use to process lockbox payments for a small bank?

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    • With lockbox banking, payments are mailed to a post office box rather than directly to a business.
      By: Friedberg
      With lockbox banking, payments are mailed to a post office box rather than directly to a business.
    • Postal offices will have larger lockboxes to accommodate packages and parcels.
      By: iceteastock
      Postal offices will have larger lockboxes to accommodate packages and parcels.
    • Most people write checks and mail them to a lockbox banking account without ever knowing it.
      By: JJ'Studio
      Most people write checks and mail them to a lockbox banking account without ever knowing it.