Building Your Business Business Banking What Is a Lockbox Payment? Lockbox Payments Explained in Less Than 4 Minutes By Justin Pritchard Justin Pritchard Facebook Twitter Website Justin Pritchard, CFP, is a fee-only advisor and an expert on personal finance. He covers banking, loans, investing, mortgages, and more for The Balance. He has an MBA from the University of Colorado, and has worked for credit unions and large financial firms, in addition to writing about personal finance for more than two decades. learn about our editorial policies Updated on March 5, 2022 Reviewed by Ebony J. Howard Reviewed by Ebony J. Howard Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. learn about our financial review board In This Article View All In This Article Definition and Example of a Lockbox Payment How Lockbox Payments Work Pros and Cons of Lockbox Payments Photo: lsbjorn / Getty Images Definition Lockbox payments are a way to help your company streamline the way it accepts money from customers and get access to the cash. A company sets up a special P.O. box to which their customers can send payments when it uses a lockbox service. Definition and Example of a Lockbox Payment Suppose you receive a bill from your electric company. It arrives in the mail with a remittance slip. You fill out the slip, enclose your check, and mail it off to a post office box in a nearby city. That post office box is your electric company's lockbox. It's a special P.O. box to which customers can send payments. The bank then collects those payments, deposits the cash, and updates the company on the transactions. How Lockbox Payments Work A company can use more than one lockbox, perhaps one in each region of the country in which it does business. Customer payments can be mailed to the closest lockbox instead of across the country, which decreases mail time and speeds up the company's access to its funds. When a payment arrives at the lockbox, it's collected by the bank, along with potentially many other payments, possibly up to several times a day. The bank might scan each remittance slip and check, enabling your company to receive the information in digital format. The money is deposited. Your company is notified of the payment to the customer's account. Note Many lockbox providers guarantee same-day deposits for their customers. A Variation on Lockbox Payments Some banks offer digitization and image-based lockbox services. Image-based services scan everything that's sent to your lockbox so you can view the information online. You can often see images from payments received on the same day they reach the lockbox. Optical Character Recognition (OCR) programs “read” everything and store the output electronically. These types of services automate data entry and provide you with same-day customer and financial information. They allow you to back up and analyze your lockbox data in several different ways. Pros and Cons of Lockbox Payments Pros Lockboxes make receiving payments easier from customers who don't want to or can't pay electronically. Payments can be collected multiple times a day. Payments avoid the delays of USPS deliveries. Cons Lockboxes can be slower and can be less efficient than electronic payment options. They can be vulnerable to security risks. Hands-on processing by you or your employees can still be required. Pros Explained Lockboxes make receiving payment easier: Remitting payment to a lockbox is an easy, simple way for a customer to send a check for payment or deposit. The payment is delivered reliably, and checks clear quickly for the price of a stamp. Lockbox payments are credited to the customer's account more quickly because of how frequently the bank collects and deposits payments. Payments can be collected more than once a day: Mail may be delivered to a lockbox location multiple times per day, instead of the once-daily visit your office may be accustomed to. This offers more opportunities to capture payments and make deposits to your account. Payments avoid the delays of USPS deliveries: Lockbox payments reduce “mail float,” the time between a customer mailing the check and your company receiving it. This can help you maximize all the money that's available to you. Cons Explained Lockboxes are still less efficient than electronic payments: While they do speed up processing time, reduce mail float, and provide quicker access to funds, there are still some disadvantages to lockbox payments. They're faster than accepting checks at the office, but they're still slower than other electronic means of transfer. Payments must still travel through the mail. They must still be processed before they're available to accounts receivable. Payments can be vulnerable to security risks: There's somewhat of a security risk in using lockbox payments. There's a risk of fraud if your bank relies on manual data entry for processing lockbox payments, whether on the part of an unscrupulous bank clerk, an offshore contractor, or a customer writing a fraudulent check. And the high volume of checks processed means there's a margin for error. Some hands-on processing is still required: Lockbox payments don't automatically tie into your accounting system. Back office staff must still reconcile payments with customer accounts. Key Takeaways A lockbox is a special P.O. box dedicated to collecting customers’ payments.A bank collects the payments, sometimes multiple times a day, and makes deposits to the business.Businesses can have multiple lockboxes in various locations.Some digitized lockbox services are available. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Government Finance Officers of the United States and Canada. "Use of Lockbox Services." CDS Global. "Remittance and Lockbox Processing."