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Talk to our experts- Lockbox
- In banking, a lockbox is a service that commercial banks offer businesses to outsource their accounts receivable payment processing. Customers mail their payments to a post office box that the bank collects from. The bank opens the mail, captures the checks and remittance documents, processes the payments, and sends the payment data to the business.
Also called: Lockbox service
How it works
Lockbox banking is a receivables service in which a business has its customers mail payments to a P.O. box that a bank collects and processes. The help pages for Release 11 of Oracle Receivables, an older release of Oracle's receivables application, describe lockbox as a service that commercial banks offer corporate customers to enable them to outsource their accounts receivable payment processing, and note that a lockbox operation can process millions of transactions a month.
The word has nothing to do with a lockable key box. In accounts receivable it names the bank service and the address that customers pay to.
The U.S. Treasury's Bureau of the Fiscal Service lists the work a lockbox does in its General Lockbox Network, a collection and processing service provided by certain financial institutions to help federal agencies process paper checks and other remittance documents received through the mail:
What a lockbox does with mailed payments
The lockbox collects the mail from the specified P.O. box.
Envelope contents are opened, extracted, sorted, and batched.
Data is scanned and captured from the payment instruments and documents.
Captured images are forwarded for check settlement, and batches are balanced and totaled.
The payments are recorded, and the data is delivered in an electronic file or through the Collections Information Repository.
Lockbox data in the ERP
The business still has to apply each payment to the right customer and invoice. Oracle's Release 11 Receivables help describes a process called AutoLockbox that uses the bank's file for this. It eliminates manual data entry by automatically processing receipts that are sent directly to the bank, and it runs in three steps:
- Import: Lockbox reads and formats the data from the bank file into AutoLockbox tables.
- Validation: the program checks the data for compatibility with Receivables, and you can optionally query the receipts and change how they will be applied before the final step.
- Post QuickCash: this step applies the receipts and updates the customer's balances.
The same Oracle help notes that AutoLockbox can automatically identify the customer who remitted the receipt and can optionally use AutoCash rules to decide how to apply the receipt to the customer's outstanding debit items.
Example
A distributor invoices 3 contractors on net 30 terms: $4,200, $1,850, and $2,950. All three pay by check to the distributor's lockbox address.
- Day 30: the bank collects the envelopes, captures the 3 checks and their remittance slips, and sends a file listing $4,200 + $1,850 + $2,950 = $9,000 in payments.
- Same day: the distributor imports the file, matches each check to its open invoice, and the customer balances drop to zero.
On Shopify
Shopify B2B is on the Basic, Grow, Advanced and Shopify Plus plans. For orders that can't be paid using a credit card, you can set up a manual payment method, and after you receive the payment, you can manually record the payment on the order in your Shopify admin.
A check mailed to a lockbox goes to the bank, so the business learns of the payment from the bank's data and then records it against the Shopify order.
How Uncap helps
Uncap's guide to B2B ecommerce payments says that for Shopify Plus merchants still accepting check payments, the order should be created as pending payment and manually marked paid once the check clears. The guide also covers how ERP integration via Uncap Connect closes the loop between order placement and financial reconciliation.
Sources
Frequently asked questions
What is a lockbox in banking?
A lockbox in banking is a service that commercial banks offer businesses to outsource accounts receivable payment processing. Customers mail payments to a P.O. box, and the bank collects the mail, captures the checks and remittance documents, processes the payments, and sends the payment data to the business.
What type of payment is lockbox?
A lockbox handles payments that customers send through the mail, such as paper checks and the remittance documents that come with them. The U.S. Treasury's General Lockbox Network, for example, processes paper checks and other remittance documents received through the mail.
What is the purpose of a lockbox?
The purpose of a lockbox is to move incoming payment processing from the business to its bank. Oracle's Release 11 Receivables help says AutoLockbox eliminates manual data entry by automatically processing receipts that are sent directly to the bank, and its final step applies the receipts and updates customer balances.
Bank lockbox vs. key lockbox: what is the difference?
A bank lockbox is a payment processing service: customers send payments to a P.O. box that the bank collects and processes. A key lockbox is a small lockable box for keys. The two only share a name.
